China is to follow a tight monetary policy to address the still-unsolved problem of excessive liquidity, and the government pledges to add another several hundred billion yuan in additional funds to boost agriculture, education, medicare and strengthen the nation's social safety network.

Addressing the First Session of the 11th National People's Congress, Premier Wen Jiabao said in his government work report that the decision to follow a tight monetary policy is based on "the strong possibility of a resurgence in fixed asset investment, continued excessive supplies of money and credit, the still-unsolved problem of excess liquidity, and considerable inflationary pressure."

However, Wen said a prudent fiscal policy is still needed to "promote structural adjustment and balanced development," and increased expenditures necessary "to shore up weak links, improve people's lives and deepen reform."

China's fiscal policy has been kept abreast with its monetary policy in the past, whether they were pro-active, prudent or tight. Economists said that the breakaway from tradition this year indicates the government efforts to prevent the economy from overheating while turning the fruit of the country's soaring economic growth in the past three decades to benefit more of the country's general public, especially those in the rural areas and the urban poor.

When the general public have more to spend, they can turn into another force to drive up the nation's economic development in the future, observers said.

According to Wen's report, the central government budget deficit this year will be set at 180 billion yuan, 65 billion yuan less than last year, and the government plans to issue 30 billion yuan of treasury bonds for investment, 20 billion yuan less.

At the same time, allocations from this year's central government budget related to agriculture, rural areas and farmers total 562.5 billion yuan, a year-on-year increase of 130.7 billion yuan. Other expenditures relating to the welfare of the public include:

-- Central government allocation for education will increase from last year's total of 107.6 billion yuan to 156.2 billion yuan, and local governments will also increase their spending. The premier pledged "free compulsory education universally available in both urban and rural areas."

-- China will extend the trial of basic medical insurance for urban residents to over 50 percent of the country's cities. China will fully implement the new type of rural cooperative medical care system in all rural areas. Within two years, China will raise the standard for financing from 50 yuan to 100 yuan per person per year, with central and local government contributions to be raised from 40 yuan to 80 yuan per person.

-- The central government will allocate 83.2 billion yuan to support the reform and development of health care, an increase of 16.7 billion yuan over last year, with the focus of spending on facilities at the urban community and village level.

-- A total of 276.2 billion yuan will be appropriated this year in the central government budget to accelerate development of the social security system, 45.8 billion yuan more than last year.

-- A total of 6.8 billion yuan will be allocated from the central government budget for the low-rent housing program this year, 1.7 billion yuan more than last year, and local governments will also increase funding in this area.

-- China will provide safe drinking water for another 32 million rural residents and support the building of a number of large and medium-sized methane facilities to serve an additional 5 million rural families.

Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance, said that a more effective fiscal spending shall address more social "weak points", when the government is trying to ease the conflict between growing fiscal revenues and the risk of an overheating economy.

"By showing more concern over social welfare, we can achieve a sound balance between money supply and demand," said Jia, who is here attending the annual session of China's top political advisory body.

After focusing almost exclusively on the pursuit of economic growth, China finds itself challenged by thorny issues that require long-term solutions. For instance, closing the urban-rural wealth gap, which hit 3.3:1 in 2006, compared with the international average of 1.8:1, is widely viewed as a huge hurdle, needing far-reaching and massive reform.

China needs to promote industrialization of agriculture, step up urbanization progress and ensure both urban and rural residents equal access to public services, which will require a steady growth of fiscal input in rural sector, Jia said.

"The investment in these fields is still not enough," he said.

To tackle chronic social issues, including the wealth gap, the ruling Communist Party and the government have repeatedly called for more efforts to be devoted to the promotion of "coordinated development" and building of "a harmonious society".

As specific measures, the government abolished the centuries-old taxes for farmers, and exempted all the 150 million pupils and middle school students in rural areas from tuition and miscellaneous fees.

Improvement has also been made in the new rural cooperative medical care system, which now covers 86 percent of China's counties and 730 million rural residents.

The government also launched campaigns to help migrant workers retrieve salaries in default and ordered migrant laborers to be included in social security network with industrial accident insurance.

A series of moves have helped boost the people's well-being and lives. The urban per capita annual net income rose from 7,703 yuan in 2002 to 13,786 yuan in 2007, and rural per capita annual net income rose from 2,476 yuan to 4,140 yuan during the same period.

"I believe the government will make greater efforts to resolve social issues and improve people's livelihood through increasing fiscal revenue and making use of other resources," Jia said.

(Xinhua News Agency March 5, 2008)