II. Draft Central and Local Budgets for 2010

This is a crucial year for continuing to deal with the global financial crisis, maintaining steady and rapid economic development, and accelerating the transformation of the pattern of economic development. It is also an important year for achieving all the targets of the Eleventh Five-Year Plan and laying a solid foundation for development on the basis of the Twelfth Five-Year Plan.

1. The current financial situation in China

On the whole, public finance in 2010 faces a more favorable environment than last year, but the situation remains complex. Regarding revenue, improvements in the macroeconomic situation and the performance of enterprises, and an increase in prices will help increase revenue. Nevertheless, the implementation of the policy of structural tax reductions, last year's increases in export tax rebate rates for some products, and other factors will affect this increase. It will be difficult for imports and exports to return to their pre-crisis levels anytime soon, and import and export tax revenue will not increase significantly. Some industries' and enterprises' profits will be low, making increases in corporate income tax revenue unlikely. In addition, last year's special measures to increase revenue will affect revenue increases this year. Regarding expenditures, huge sums of money will be needed to support ongoing projects. Further increases in financial support will be required to raise the incomes of low-income groups; improve key links in economic and social development, such as agriculture, rural areas, farmers, education, science and technology, social security, employment, medical and health care, low-income housing, and energy conservation and emissions reductions; and develop ethnic minority areas and border areas. In these areas, the base figure for expenditures is large and there is little leeway. In addition, major increases in investment are needed to support post-Wenchuan earthquake recovery and reconstruction, launch a pilot program for a new old-age insurance system for rural residents, and proceed with the reform of the pharmaceutical and healthcare systems and other reforms. This year will therefore be a very difficult year for public finance.

Faced with this situation, we must, on the one hand, take note of all favorable conditions and positive factors and fortify our confidence, and on the other hand, take into full consideration the difficulties and challenges we will face and avoid blind optimism. We need to raise our awareness of potential dangers and risks, be thoroughly prepared to respond to risks and challenges, and firmly maintain the initiative in our work.