2. Macro-regulation was further strengthened through public finance.

On the basis of increasing spending on agriculture, rural areas and farmers and increasing transfer payments, we promptly improved measures for implementing a prudent fiscal policy and coordinated these improvements with other policies to solve serious problems affecting economic performance. All this promoted sound and rapid economic development.

We reduced the deficit significantly and improved the mix of central government development investment. The central government deficit was 200 billion yuan in 2007, dropping to 0.8 percent of GDP. This figure is attributed to a deficit reduction of 30 billion yuan from 2006 in the budget for 2007 and a deficit reduction of another 45 billion yuan when the budget was implemented. Central government development investment in 2007 totaled 134.4 billion yuan. These funds were mainly used to build a new socialist countryside, develop social programs, protect the ecosystem and develop the western region. The pace of budget implementation was adjusted to ensure budgetary funding for key projects.

We implemented fiscal and taxation measures to curb excess liquidity. In accordance with the Resolution of the NPC Standing Committee on Approving the Issuance of Special Government Bonds by the Ministry of Finance to Buy Foreign Exchange and on Adjusting the Limit for the Outstanding Balance of Government Bonds at the End of 2007, the Ministry of Finance issued 1.55 trillion yuan worth of special government bonds to buy US$ 200 billion of foreign exchange, thus releasing more RMB from foreign exchange holdings and reducing the pressure on implementation of monetary policy. We reduced the applicable tax rate for individual income on savings interest from 20 percent to 5 percent. As a result, people's incomes from savings interest increased, while at the same time the impact of rising prices on these incomes was reduced.

We adjusted and improved fiscal and taxation measures to promote the balance of payments. We eliminated export rebates for 553 resource products and products whose production is energy intensive or highly polluting. Export rebate rates were reduced for 2,268 products whose export might easily lead to trade friction. We lowered import tariffs on 511 energy resources and resource products and increased export tariffs on 222 resource products and products whose production is energy intensive or highly polluting. We adjusted the list of commodities whose use is classified as prohibited or subject to some restrictions in the processing trade. Preferential tax treatment was given to the importation of some resource products and major equipment. A policy was introduced to subsidize imports of products and technologies on the list of products and technologies whose import is encouraged. We gave support to enterprises following the "go global" policy.

We improved fiscal and taxation measures to support energy conservation and emissions reduction. The central government allocated 23.5 billion yuan and local governments increased funding to support the launch of ten major national energy conservation projects; build pipe networks for urban sewage treatment systems in the central and western regions; control water pollution in the Huai, Hai, Liao and Songhua rivers and Tai, Chao and Dianchi lakes; and eliminate backward production facilities. We formulated and introduced a policy making it mandatory for governments to buy energy-saving products. Further, the number of products labeled as environmentally friendly and to be given priority in government procurement was increased from 856 to 2,823. A preferential tax policy was introduced to encourage the pumping, extraction and utilization of coal seam gas and to encourage water-conserving irrigation. The resource tax rate on selected taxable mineral products was adjusted to promote rational exploration and utilization of natural resources. Environmental protection and energy conservation were taken as factors for eligibility for preferential tax treatment under the new Law on Corporate Income Tax. We made steady progress in the reform of the compensation system for the use of mineral resources and comprehensively implemented policies for promoting the development of both renewable resources and new energy resources. We made innovations in the mechanism for responding to climate change.

We gave strong support to scientific and technological advances and independent innovation. We increased allocations to the State Natural Sciences Fund, the National Key Technology R&D Program and other research programs. We gave greater support to nonprofit research institutes and scientific research in nonprofit sectors. We also supported the building of a system of industrial technologies for modern agriculture, the establishment of a national platform to develop basic conditions for science and technology, and the creation of national laboratories and national key laboratories. We promoted reform of the system for managing research institutes. We encouraged independent innovation in small and medium-sized science and technology enterprises, launched a pilot project for venture capital investment, and formulated and implemented taxation policies to support the development of state university science parks and science and technology business incubators.