II. Central and Local Draft Budgets for 2015

The year 2015 will be crucial to the comprehensive deepening of reform; it is the first year for comprehensively advancing the law-based governance of China and the final year for completing the Twelfth Five-Year Plan. When it comes to carrying out the policies and plans of the CPC Central Committee and the State Council, and modernizing our nation's governance system and capacity for governance, it is of great significance that the budgets for 2015 are well formulated, and that we go further in giving proper expression to the role of public finance.

In 2015, the domestic and international economic situation will remain complicated. With the impact of growing downward pressure on the economy, further structural adjustments, all-round reform, and the slowdown in the growth of government revenue, the imbalance in government revenue and expenditure this year will be more notable. In light of the fiscal and economic situation that we face, in carrying out public finance work and preparing the budgets for 2015, we need to fully put into practice the guiding principles of the 18th National Congress of the CPC, the third and fourth plenary sessions of its 18th Central Committee, and the Central Economic Work Conference; act in the spirit of General Secretary Xi Jinping's major speeches and, on the basis of the decisions and plans of the CPC Central Committee and the State Council, persevere with seeking progress while keeping performance stable and with carrying out reforms and innovations. We need to continue to implement proactive fiscal policy and, to an appropriate extent, step up the intensity, giving full scope to the important role of fiscal and tax policies in stabilizing growth, advancing structural adjustment, and promoting reform. We need to deepen reform of the fiscal and tax systems, thoroughly put into effect the new Budget Law and the decision of the State Council on deepening reform of the budget management system, improve regulations on budgetary management, and make our budgets more open and transparent. We need to improve the government budgeting system and increase the coordination between budgets. We need to make good use of both available and additional funds, and optimize the structure of budgetary expenditures, ensuring spending in some areas while cutting it in others so that spending in key areas, especially areas relating to the people's quality of life, is guaranteed while general expenditures are brought under tight control. We must enforce strict financial discipline. We must strengthen management of local government debt, be on our guard against fiscal risks, and give impetus to steady, sound economic development and social harmony and stability.

The new Budget Law comes into effect in 2015, thus the requirements of that law must be strictly complied with in preparing the central and local government budgets for this year.

First, key items in the budgets that, according to the stipulations of the new Budget Law, are subject to examination and approval by people's congresses, need to be reported in detail, including the implementation of the previous year's budgets, arrangements for this year's budgets, government debt, and transfer payments.

Second, the emphasis must be on reporting on budgeted expenditure and fiscal policies so as to actively invite oversight.

Third, available funds need to be put to good use. The central and local governments will go further to sort out carryover and surplus funds, keep newly added carryover and surplus funds under strict control, and make use of recovered funds in key areas of economic and social development.

Fourth, efforts to carry out overall planning for budgets need to be intensified. Revenue and expenditure from local educational surcharge and ten other funds will be transferred from government-managed funds budgets to general public budgets. And the proportion of funds to be transferred from the budgets for state capital operations to the general public budgets will be further increased.

Fifth, budgets need to be made more detailed. Budgets for basic expenditures at the central level and for central government departments in the draft budgets need to be detailed down to the specific economic category. On the basis of having itemized budgets for transfer payments by project, such budgets also need to be detailed to specific regions. The overall size of budgets compiled by finance departments for other departments and projects will be further cut back, and we will make more funds for budgetary items available at the start of the year.

Sixth, we need to make progress across the board in releasing budgets. With the exception of cases in which classified information is involved, any department that receives government appropriations must make its budgets open to the public.

1.Fiscal policy for 2015

We will continue to implement proactive fiscal policy in 2015 and, as appropriate, increase the intensity. This will be mainly reflected in the following four areas:

First, we will increase the deficit by an appropriate amount and put to use funds carried over from previous years to increase the intensity of spending. Government deficit for 2015 is projected to be 1.62 trillion yuan nationwide, an increase of 270 billion yuan over last year, with increases in both the central government deficit and the local government deficit. This means that the deficit to GDP ratio will come to approximately 2.3%, up 0.2 percentage points on last year. In addition, the special debt of local governments that has been placed under the management of government-managed funds budgets will be increased by 100 billion yuan; and the central government will use 112.4 billion yuan of funds carried over from previous years to further increase the intensity of spending.

Second, we will implement structural tax cuts as well as reductions to fees across the board to strengthen our support for the real economy. As we push forward with the reform of the tax system, we will review and standardize tax relief and other preferential policies, and channel great energy into completing our work to replace business tax with VAT in all industries, thus further eliminating duplicate tax charges. We will make sure measures to reduce fees across the board are fully implemented, reduce or waive payments into government-managed funds as well as administrative charges for small and micro businesses, and continue to do away with unauthorized charges in order to relieve the burden on these enterprises.

Third, we will strengthen efforts to make use of available government funds, and use funds more effectively. We will act in line with the requirements of the new Budget Law to develop an accurate picture of carryover and surplus funds, and in putting these funds to use we will favor areas such as public services, infrastructure, and improving quality of life. We will review special fiscal accounts, set ceilings for working capital in the budgets and budget stabilization funds, and carry out fiscal planning on a rolling basis for the next three years to prevent new funds from becoming idle.

Fourth, we will keep government investments at a certain scale, and make good use of the guiding role of such investments. This year the central government will earmark 477.6 billion yuan for investment in infrastructure, which is 20 billion yuan more than the previous year. The orientation of government investment will be adjusted and improved, with funds being used primarily for major state projects, trans-regional and cross-watershed investment projects, and major projects with strong externalities. We will further reduce investment in competitive areas and on subsidizing small and miscellaneous local projects.

Major spending policies are as follows:

Education

We will carry out the second phase of the action plan for preschool education. Our focus will continue to be on poor areas and schools that are badly built and poorly operated, and support and guidance will be given to local governments to encourage them to increase input into efforts to develop primary and secondary boarding schools in poor rural areas, expand and renovate schools in counties and townships to help them cope with increasing class sizes as more and more students from villages attend these schools, and improve facilities for primary and secondary school students, all with the aim of improving the basic conditions of badly built and poorly operated schools for compulsory education. We will implement the system of government financial aid policies. We will raise the annual government grants for students in secondary vocational schools and regular senior high schools from 1,500 yuan to 2,000 yuan per student. We will continue to implement the quality improvement plan for modern vocational education, and guide and incentivize local governments to step up the pace of work to improve their systems for allocating funds to vocational colleges based on student numbers. In this regard, awards and subsidies will be given to local governments from the central budget based on an evaluation of their respective progress in developing such a system, contribution of financial resources, reform and development in vocational education, and other factors. We will reform and improve the funding mechanisms for institutions of higher learning under the central government so that the cost of education can be shared between the government and students in a reasonable way; and we will encourage these institutions to embrace an internal quality building model of development and cultivate innovative students. We will support the development of local universities and colleges, pushing them to improve quality and helping them bring out their own distinct features. Impetus will be given to international exchange and cooperation in education.

Science and technology

We will put into practice the strategy of innovation-driven development. We will deepen reform in the management of science and technology initiatives (projects and funds) financed by the central government, taking proactive steps to optimize and integrate all types of science and technology initiatives, establishing an open and unified national science and technology management platform, and developing comprehensive, integrated methods for planning and implementing initiatives. We will improve and strengthen the management of research programs and their funding. We will expand the scale of the national seed fund for the application of scientific and technological advances and attract more nongovernmental funds and financial capital to support application. We will establish a national seed fund for investment in business start-ups in emerging industries, offering financial support primarily to innovative enterprises in emerging industries which are still in the embryonic stage, thus generating impetus for new businesses, innovation, and the upgrading of industry by pooling government, nongovernment, and private funds. We will promote the open sharing of scientific and technological resources by establishing a mechanism of subsidizing operators of major national facilities for scientific research and large or costly research apparatus who allow public access to their facilities. We will improve the funding mechanism for research institutes at the central level. We will increase spending on basic research and support efforts that raise our ability to make original innovations. We will give financial support to speed up progress in major national science and technology initiatives. We will improve government procurement policies and measures that support innovation and increase procurement of innovative products. Trials will be launched to test a compensation mechanism for insuring major newly developed technological equipment.

Social security and employment

We will keep to the rate of 10% in raising basic pension benefits for enterprise retirees. In reforming and improving the basic pension system for workers, we will focus on actuarial balance, combining contributions from different sources with funds in personal accounts, so as to close loopholes in the system and strengthen the supporting capacity of the insurance fund.

A basic pension system for the employees of Party and government offices and public institutions will be established, in which the contribution from the employer is equivalent to 20% of the employee's total salary and the individual contribution is equivalent to 8% of the base figure of the employee's salary. An occupational annuity system will also be established, in which the contribution from the employer is equivalent to 8% of an employee's total salary and the individual contribution is equivalent to 4% of the base figure of the employee's salary. Adjustments will be made to the salaries of employees in government bodies and public institutions. For public servants at the county level or lower, a salary system based on both position and rank will be implemented. We will complete work on standardizing allowances and subsidies for public servants and introducing performance-based pay in public institutions, and conduct research on the establishment of a system of additional allowances for certain areas.

We will increase support for financial aid and living subsidies to people facing serious difficulties to ensure that they have access to basic necessities, implement the temporary assistance system nationwide, and make sure work related to the subsistence allowances for both urban and rural residents is done properly. Adjustments will be made to subsidies and living allowances for entitled groups when appropriate.

We will optimize the mix of expenditures on employment. We will implement the initiative for promoting employment for university graduates and the scheme for guiding university students in starting new businesses, and give priority to work related to the employment of groups in more difficult circumstances, including migrant workers. We will put into effect and improve the policy of providing subsidies from the unemployment insurance fund to enterprises which maintain stable employee numbers during structural adjustments, and reduce the contributions of enterprises to the unemployment insurance fund. We will strengthen the government's capacity for providing public employment services.

Medical and health care

We will increase investment in public health services and comprehensive public hospital reform. We will raise annual per capita spending on basic public health services from 35 yuan to 40 yuan, with the entire additional funds in rural areas to be used for purchasing basic public health services from rural doctors. We will increase support for the prevention and control of major diseases. The comprehensive reform of county-level public hospitals will be extended to all counties, and the central government will continue to provide a subsidy of three million yuan per county. The reform of public hospitals in urban areas will be extended to more cities. Efforts will be continued to provide standardized training for resident physicians, with annual subsidies of 30,000 yuan per person from the central government.

We will improve the basic medical insurance system for urban and rural residents, raise government subsidies for the new rural cooperative medical care system and basic medical insurance for nonworking urban residents from 320 yuan to 380 yuan per person per annum, and make a corresponding increase to the annual individual contribution, which will go up from 90 to 120 yuan per person. The major disease insurance scheme for rural and non-working urban residents will be introduced nationwide, with an appropriate increase in the required contributions.

Agriculture

We will increase support for implementing the strategy on developing sustainable, ecologically friendly agriculture. The trials for restoring and improving cultivated land contaminated by heavy metals and trials for dealing comprehensively with the over-abstraction of groundwater will both be expanded. We will support efforts to improve the subsoil of cropland, develop eco-friendly tilling, and return plant stalks to fields in order to restore and improve the productivity of the land. We will give greater support to major grain-, edible oil-, and seed-producing counties, and improve the mechanisms for subsidizing major grain-growing areas. We will strengthen the building of farmland irrigation and water conservancy infrastructure and supporting end-use facilities for major water conservancy projects. We will increase investment in comprehensive agricultural development, and work hard to build high-grade farmland.

We will improve the policies on agricultural subsidies, intensify efforts to combine funds for this purpose, and use subsidies in a more precise, targeted, and effective way. We will improve the methods for carrying out reforms to ensure guaranteed base prices for cotton and soybeans. Great effort will be channeled into offering support to larger-scale operations, making thoroughgoing innovations in farmer cooperatives, intensifying institutional innovation in the trials to provide commercial services for the whole process of agricultural production, and integrating the development of primary, secondary, and tertiary industries in rural areas. Policies on rural finance and agricultural insurance will be improved to guide more private capital to invest in the development of modern agriculture.

We will improve the government award and subsidy mechanism for village-level public works launched on the basis of deliberation by villagers, and continue developing pilot projects for building beautiful rural areas and trials to exemplify towns designated by provincial-level governments. We will work proactively to advance demonstrations and trials for comprehensive rural reform and the pilot reform to relieve state-owned farms of social service responsibilities, and we will search for effective ways to develop the rural collective economy. We will support steady steps forward in the trials for determining, registering, and certifying contracted rural land-use rights, with subsidies of 150 yuan per hectare from the central government for China's cultivated land area of 121 million hectares. These subsidies will be granted on a yearly basis according to the actual progress of the work. We will support poverty alleviation and development in major contiguous poor areas, and carry out carefully targeted measures to ensure that the funding for poverty alleviation actually reaches the people who need it.

Ecological conservation and environmental protection

We will go further in encouraging efforts to protect virgin forests, establishing an award and subsidy mechanism for halting logging in areas of natural forest not yet covered by the protective policy, and increasing existing subsidies for those areas of natural forest that already fall under the policy. A further 666,667 hectares of marginal farmland will be returned to forest or grassland. We will go further in improving the financial compensation system for forest conservation and forestry that produces positive ecological impact and the policy on subsidies and awards for the ecological conservation of grassland. We will increase investment in controlling air pollution. We will integrate financial resources to establish funds for the prevention and control of water pollution to help strengthen efforts in this regard, and carry out pilot projects to comprehensively improve the conditions of rivers by covering each river's entire drainage basin. We will establish mechanisms to cover every aspect of efforts to promote the use of new-energy vehicles. We will adjust and improve the uses of existing funds for supporting the closure of outdated production facilities to tackle overcapacity. We will extend to more areas the comprehensive demonstrations for energy conservation and emission reduction based on integrating financial policies, and grant a full package of incentives to eligible provinces. We will deepen reform of the cap-and-trade system for pollution discharge, and expand trials of having provinces situated on the upper and lower reaches of river basins compensate each other for their impact on water quality.

Government-subsidized housing projects

To make sure that all the tasks for this year are completed, we will steadily shift the focus of our efforts from mainly providing physical housing to providing both housing and financial subsidies, thereby subsidizing both homes and home buyers; we will make use of the PPP model and government procurement of services, guiding nongovernmental capital to become involved in purchasing, building, and managing public rental housing; we will actively support the rebuilding of rundown areas in the cities; and we will make good use of available housing. We will develop methods for performance assessment on urban government-subsidized housing projects. We will step up efforts to renovate dilapidated rural housing and coordinate efforts for making rural housing more resistant to earthquakes.

Culture

We will support accelerated development of a modern system of public cultural services, and take steady steps to make the delivery of basic public cultural services increasingly standardized and equitable. We will support implementation of the initiative to make sure Chinese culture is passed on, strengthen the protection of cultural heritage and traditional Chinese villages, and promote the development of folk culture and ethnic minority cultures. We will support efforts to help art and literature to thrive and cultivate cultural talent, and we will put our weight behind ensuring the production of more works of distinction that have depth, contain a positive social message, and demonstrate a human touch. We will support efforts to strengthen the international communication capacity of our key news media outlets, and integrate the development of traditional and emerging media. We will establish a sound system to boost the cultural sector, and accelerate the development of its key industries.

Administration of justice

We will support the establishment of circuit courts under the Supreme People's Court and the establishment of courts in Beijing, Shanghai, and Guangzhou for dealing with intellectual property rights related cases. We will push forward with trials to have provincial governments exercise unified management of and provide funding for the human, financial, and material resources of local courts and procuratorates below the provincial level.

Strengthening national defense and the armed forces

To strive for the goal of building powerful armed forces, we will strengthen the military in all respects so that they are more revolutionary, modern, and standardized; so that they are constantly developing their ability to complete their missions and tasks; so that they safeguard China's sovereignty, security, and territorial integrity; and so that they ensure its peaceful development.

Improving the fiscal and transfer payments systems

We will adjust the mechanism for sharing the increase in export tax rebates. Beginning in 2015, the central government will pay the full sum of the increase in export tax rebates, and will no longer turn the increase in consumption tax over to local governments at a ratio of 1:0.3. This will help build a market that is unified across the country and improve the consumption tax system. We will establish sound mechanisms to link the transfer payments a government receives to the number of people from rural areas who have become registered permanent residents in urban areas within their jurisdiction. We will step up efforts to comb through and rearrange special transfer payments, so that in 2015, the number of items receiving special transfer payments from the central government will be further cut, this time to around one hundred.