Full Text: Report on the Work of the Government(14)

To reach the above targets, we must continue to implement a proactive fiscal policy and a prudent monetary policy, maintain continuity and stability of our policies, and make them more forward-looking, targeted and flexible.

We will continue to implement a proactive fiscal policy. We should make our proactive fiscal policy play a bigger role in ensuring steady growth, adjusting the structure, advancing reform, and benefiting the people.

First, we will increase the deficit and government debt by appropriate amounts. This year we are projecting a deficit of 1.2 trillion yuan, 400 billion more than the budgeted figure last year. This consists of a central government deficit of 850 billion yuan and 350 billion yuan in bonds to be issued on behalf of local governments. The time-lag of past structural tax cuts will make it hard for government revenue to grow fast this year, while fixed government expenditures will increase. In particular, it is necessary to increase spending to ensure and improve people's wellbeing and maintain support for economic growth and structural adjustment. Consequently, we deem it necessary to appropriately increase the deficit and government debt. It should be noted that China has a relatively low debt-to-GDP ratio, and the increase in the deficit this year will bring the deficit-to-GDP ratio to about 2%, which is overall at a safe level.

Second, we will improve the structural tax cut policy as we continue to reform the tax system. The focus will be on accelerating the pilot project to replace business tax with VAT, improving the way these trials are conducted and extending them to more areas and sectors in a timely manner.

Third, we will work hard to optimize the structure of government expenditures. We will continue to give priority to spending on education, medical and health care, social security and other weak areas that are important to people's wellbeing. We will strictly limit regular expenditures like administrative expenses, and practice thrift in everything we do. Investment from the central government budget will be mainly made in government-subsidized housing projects; infrastructure projects related to agriculture, water conservancy and urban utilities networks; social programs and other projects to improve people's wellbeing; and energy conservation, emissions reduction and environmental protection.

Fourth, we will continue to strengthen management of local government debt. We will properly handle debt repayment and follow-up financing for ongoing projects, put in place a system for managing local government debt and keep such debt at an appropriate level.

We will continue to implement a prudent monetary policy. We will maintain a balance between boosting economic growth, keeping prices stable and guarding against financial risks.

First, we will improve the policy framework for exercising macro-control prudently and have monetary policy play the role of making counter-cyclic adjustments. The target for growth of the broad money supply (M2) is about 13%. We will employ a full range of monetary policy tools to control market liquidity, increase the money and credit supply at an appropriate pace, and expand the aggregate financing for the economy by an appropriate amount. We will improve the transmission mechanism for monetary policy, better coordinate financial oversight and monetary policy, and improve oversight standards and their implementation.

Second, we will better allocate financial resources. We will guide financial institutions to increase financial support for structural adjustments to the economy, especially for agriculture, rural areas and farmers, small and micro businesses, and strategic emerging industries, and satisfy funding needs for key national projects under construction or expansion. We will broaden financing channels for the real economy and reduce its financing costs. We will promote steady and healthy development of the capital market.

Third, we will resolutely guard against systemic and regional financial risks. We will guide financial institutions to operate prudently, and we will tighten oversight over financial risks in certain sectors and regions and risks related to the off-balance sheet activities of financial institutions, and thus make the financial sector's support for economic development more sustainable.