2. Budgetary revenue and expenditure in 2014

(1) General public budgets

Revenue in the general public budgets nationwide totaled 14.034974 trillion yuan, an increase of 8.6% over 2013 (as below). Adding the 100 billion yuan from the Central Budget Stabilization Fund, utilized revenue totaled 14.134974 trillion yuan. Expenditure in the general public budgets nationwide amounted to 15.166154 trillion yuan, up 8.2%. Including the 219.52 billion yuan used to replenish the Central Budget Stabilization Fund and local budget stabilization funds and carried forward to the 2015 local budgets, and the 99.3 billion yuan used to repay the principal on local government bonds, expenditure totaled 15.484974 trillion yuan. Total expenditure therefore exceeded total revenue, leaving a deficit of 1.35 trillion yuan.

There was a further slowdown in the growth rate of revenue in the general public budgets nationwide. There were several reasons for this. First, downward pressure on the economy was great, and growth in indexes including industrial production, consumption, investment, and corporate profit demonstrated varying levels of decline, leading to slower growth in revenue from VAT, corporate income tax, and other major forms of tax. Second, the producer price index (PPI) was constantly falling, and the consumer price index (CPI) remained low, which had an impact on the growth of government revenue as calculated according to current prices. Third, policies to make adjustments to the real estate market grew in impact, and there was a steep decline in housing sales, leading to a significant slowdown in the growth of revenue from real estate business tax, corporate income tax from enterprises in the real estate industry, and deed transfer tax. In addition, expansion of the pilot scheme to replace business tax with VAT and implementation of other policies also led to certain reductions in government revenue.

Revenue in the central government's general public budget amounted to 6.449001 trillion yuan, 100.2% of the budgeted figure and an increase of 7.1%. Adding the 100 billion yuan contributed by the Central Budget Stabilization Fund, total revenue used by the central government came to 6.549001 trillion yuan. Expenditure from the central government's general public budget amounted to 7.417436 trillion yuan, 99.1% of the budgeted figure and an increase of 8.3% (this includes 2.256991 trillion yuan in central government spending, 100.3% of the budgeted figure and an increase of 10.2%). Adding the 81.565 billion yuan used to replenish the Central Budget Stabilization Fund, central government expenditure totaled 7.499001 trillion yuan. Total central government expenditure exceeded total central government revenue, leaving a deficit of 950 billion yuan, which was the figure budgeted for. Government bonds in the central budget had an outstanding balance of 9.565545 trillion yuan at the end of 2014, which meant it had been kept within the limit of 10.070835 trillion yuan budgeted for the year. The Central Budget Stabilization Fund had a balance of 134.115 billion yuan.

Figure 1

Balance of Central Government Finances in the General Public Budget in 2014

Revenue in local governments' general public budgets came to 7.585973 trillion yuan, an increase of 9.9%. Adding the 5.160445 trillion yuan in tax rebates and transfer payments from the central government, local government revenue in their general public budgets totaled 12.746418 trillion yuan. Local government expenditure in their general public budgets amounted to 12.909163 trillion yuan, up 7.8%. Adding the 137.955 billion yuan used to replenish local budget stabilization funds and carried over to 2015 plus the 99.3 billion yuan used to repay the principal on local government bonds, local government expenditure totaled 13.146418 trillion yuan. Total expenditure of local governments exceeded their total revenue, leading to a local government deficit of 400 billion yuan.

Figure 2

Balance of Local Government Finances in the General Public Budget in 2014

The following passages detail the specifics on the implementation of the central government's general public budget in 2014.

1) Main revenue items

Domestic VAT revenue was 2.110297 trillion yuan, 97% of the budgeted figure. This shortfall was mainly due to increases in value added of industry and commodity prices being lower than projected at the beginning of the year, while the replacement of business tax with VAT also led to a considerable increase in business VAT deductions. Revenue from domestic consumption tax was 890.682 billion yuan, 100.4% of the budgeted figure. Revenue from VAT and consumption tax on imports amounted to 1.44244 trillion yuan, 96.6% of the budgeted figure. This discrepancy was mainly due to falls in both the prices of imported bulk commodities and the total volume of imports. Revenue from customs duties came to 284.319 billion yuan, 101.4% of the budgeted figure. Corporate income tax revenue was 1.58125 trillion yuan, 101.3% of the budgeted figure. Individual income tax revenue was 442.596 billion yuan, 103.2% of the budgeted figure. VAT and consumption tax rebates on exports came to 1.135648 trillion yuan, 100.2% of the budgeted figure. Non-tax revenue totaled 445.758 billion yuan, 119.3% of the budgeted figure, which was mainly attributable to the increase in profits turned over to the central government by some financial institutions.

Revenue in the central government's general public budget exceeded the budgeted figure by 11.001 billion yuan in 2014, which was used to replenish the Central Budget Stabilization Fund and carried over to 2015 budgets in accordance with the newly revised Budget Law and other relevant regulations.

2) Main expenditure items

Expenditure on agriculture, forestry, and water conservancy reached 647.422 billion yuan, 99.8% of the budgeted figure and an increase of 8.4%. Of this total, central government spending accounts for 53.963 billion yuan, while transfer payments made to local governments account for 593.459 billion yuan. Trials were carried out to restore and improve cultivated land contaminated by heavy metals and deal comprehensively with the over-abstraction of groundwater. We implemented and improved policies on subsidies for farmers, and carried out trials in five provinces to subsidize major grain growers. The principle of giving high priority to saving water was put into action, leading to the improvement of small irrigation and water conservancy facilities in 1,200 key counties. Efforts to promote comprehensive agricultural development and upgrade low- and medium-yield cropland were stepped up, leading to the development of 1.8791 million hectares of high-grade cropland. Efforts were also devoted to cleaning up and improving the flood defenses of small and medium-sized rivers, with work completed on a total of 46,000 kilometers of river. Impetus was given to efforts to reinforce and improve the safety of small, poorly maintained reservoirs. We supported work to prevent flooding and fight drought. We supported the further mechanization of agriculture, and saw the overall level of mechanization in ploughing, sowing, and harvesting exceed 61%. New types of agricultural businesses were nurtured and supported. Improvements were made to the policy for supporting grassland ecological conservation, and subsidies were provided for 253.33 million hectares of grassland. We reformed the mechanisms for managing government poverty alleviation funds, ensuring that these funds were used to greater effect, and helped 12.32 million rural residents lift themselves out of poverty. Steady progress was made in the pilot reform to ensure guaranteed base prices for cotton and soybeans. The trial to comprehensively reform the pricing for water used in agriculture was deepened. We secured the completion of approximately 340,000 village-level public works projects launched on the basis of deliberation by villagers and covered by the government award and subsidy system.

Spending on social security and employment totaled 706.609 billion yuan, 98.8% of the budgeted figure and an increase of 8.5%. The shortfall is mainly due to actual spending on natural disaster relief and subsidies for entitled groups being lower than the budgeted amount. The total includes 69.988 billion yuan in central government spending, and 636.621 billion yuan in transfer payments to local governments. We provided social security subsidies and subsidies for public-service job positions to assist those experiencing employment difficulties. We implemented an initiative to guide business startups and encouraged university students to seek employment or start their own businesses. Basic pensions for enterprise retirees were raised by 10%, with per capita monthly benefits reaching 2,068 yuan. We merged the new type of pension system for rural residents and the pension system for non-working urban residents, creating a basic pension scheme for rural and non-working urban residents. As of July 1, 2014, the per capita basic pension for people participating in the new insurance scheme was raised by 15 yuan per month. We further raised subsistence allowances for urban and rural residents. Work was done to ensure basic necessities for people experiencing extreme poverty, and we supported the nationwide implementation of the temporary assistance system. We increased subsidies and living allowances by at least 20% for disabled military personnel, families of revolutionary martyrs, Red Army veterans living in rural areas, elderly ex-servicepersons, and other entitled groups. We worked to protect and manage overseas memorials for Chinese martyrs who gave their lives outside of China. We established the system for providing subsidies for the very elderly and senior citizens suffering from loss of physical and/or mental capacity who are experiencing financial difficulties.

Spending on medical and health care and family planning came to 293.126 billion yuan, 96.5% of the budgeted figure and an increase of 11%. The shortfall is mainly due to the decreases in the actual expenditures on medical insurance for urban and rural residents and in the spending on public hospital reform, for which arrangements were made on the basis of progress in the reform of the medical and health care systems. This total consists of 9.025 billion yuan of central government spending and 284.101 billion yuan made in transfer payments to local governments. Government subsidies channeled through the new rural cooperative medical insurance system and the basic medical insurance system for non-working urban residents were increased to 320 yuan per person per annum. For this purpose, the central government increased subsidies to local governments, and rates for individual contributions were raised to 90 yuan per person per annum. We integrated all subsidies for medical assistance to urban and rural residents, and expanded the scope of assistance for medical care. We extended the major disease insurance pilot scheme for rural and non-working urban residents to all provinces, autonomous regions, and municipalities directly under the central government. We supported the establishment of a nationwide system of assistance for emergency medical treatment. A further 737 counties and 17 cities were selected to begin trials in comprehensive public hospital reform. We supported the launching of a standard training program for 50,000 resident physicians nationwide, and subsidized the training centers for the program. We increased annual per capita spending on basic public health services from 30 yuan to 35 yuan, and weighted spending to favor rural doctors. Work on the prevention and control of HIV/AIDS and other major diseases was strengthened, and support was given to help achieve nationwide coverage with work on nucleic acid testing and HIV/AIDS prevention for blocking mother-to-child transmission. We raised the special subsidies given to parents following the death of their only child and to parents whose only child suffers from some form of disability.

Spending on education totaled 410.19 billion yuan, 99.2% of the budgeted figure and an increase of 8.2%. This total consists of 125.392 billion yuan of central government spending and 284.798 billion yuan made in transfer payments to local governments. The second phase of the three-year action plan for preschool education was launched; a pilot initiative for offering remote rural areas preschool education supported by volunteers on a rotating basis was put into action; and encouragement was given to the development of both government and private provision of education services to increase the resources for pre-schooling. We further improved the mechanisms for guaranteeing the funding for compulsory education in rural areas, made a further 40 yuan increase to the benchmark for public funding per student in primary and secondary schools in rural areas, and on top of this, further increased public funding for boarding schools in rural areas. We supported local governments in comprehensively improving the basic conditions of schools providing compulsory education in poor areas, so as to narrow the gap between urban and rural areas in terms of compulsory education. As of November 2014, the subsidy given to those areas covered by the pilot scheme to implement a national plan for improving the nutrition of students receiving compulsory education in rural areas was raised from three to four yuan per student per day, benefitting over 32 million primary and secondary school students. We continued to support local governments to effectively solve the issue of providing equal access to compulsory education for the children of migrant workers living with their parents in cities. We encouraged local governments to set up a sound, reform-oriented, and performance-based system for the allocation of funds on a per student basis for higher vocational schools. Adjustments and improvements were made to the method for providing government subsidies for the waiving of tuition fees at schools providing secondary vocational education; and by using awards in place of subsidies, support and guidance were given to local governments to optimize the distribution of secondary vocational schools and, on this basis, improve the basic conditions at these schools. We improved the system for allocating funds from the central budget to central government institutions of higher learning to help promote an internal quality building model of development of higher education. Support was continued for the development of local universities and colleges. We further improved the system of government financial aid policies; extended this assistance to cover preparatory students from ethnic minorities; and adjusted and refined the policies related to national education assistance loans, benefitting approximately 6.6 million college students, 4.88 million regular high school students, and 12.34 million secondary vocational school students.

Spending on science and technology came to 254.182 billion yuan, 95.1% of the budgeted figure and an increase of 3.5%. The main reason that total spending fell below the budgeted figure was that the allocation of funds to major national science and technology programs was carried out on the basis of their actual progress, and certain programs fell behind the schedules set in early 2014 due to the great difficulty of the research being conducted. This total is comprised of 243.666 billion yuan of central government spending and 10.516 billion yuan in transfer payments to local governments. Safeguards were provided for the implementation of major national science and technology programs, and important progress and breakthroughs were made in electronics, information, energy, environmental protection, biomedicine, advanced manufacturing, and other fields. Strong support was given for basic research, strengthening the groundwork for making national innovations. Impetus was given to research on cutting-edge technologies and major generic key technologies, as well as research for the public benefit, and the integration of science and technology with industry was strengthened. We supported the building of platforms for innovation in science and technology, including basic national science and technology facilities, and key national laboratories, and worked to help ensure that scientific and technological resources are openly shared. We launched the national seed fund for encouraging the application of advances in science and technology, and drew on market mechanisms to promote the use of advances in science and technology for profit and for application in industry. Support was given to making major advances in the development of the national defense science and technology industry.

Spending on culture, sports, and media totaled 50.815 billion yuan, 99.2% of the budgeted figure and an increase of 8.3%. This figure is comprised of 22.269 billion yuan of central government spending and 28.546 billion yuan made in transfer payments to local governments. Efforts were continued to open more public cultural facilities such as public libraries, museums, and memorial halls to the public free of charge. Efforts were stepped up to extend wireless digitalized coverage of central radio and television programming. Support was provided for the protection of cultural heritage, and trials were launched to preserve 327 traditional villages. Work was begun to provide funding through the China National Arts Fund, and following assessment, 393 projects were selected to be granted funding. Efforts were made to see that large stadiums and gymnasiums are opened to the public free of charge or at low cost, and further improvements were made to community sports and fitness facilities. Support was given for the introduction of soccer in schools. Support was also given for the development of cultural industries, and encouragement was given to the integrated development of cultural and creative industries, design services, and other related industries.

Spending on guaranteeing housing totaled 252.978 billion yuan, 100% of the budgeted figure and an increase of 9%. This figure consists of 40.541 billion yuan of central government spending and 212.437 billion yuan made in transfer payments to local governments. We integrated the central government funds earmarked for low-rental housing, public rental housing, and the redevelopment of rundown urban areas. Work to integrate the operations of public- and low-rental housing moved forward. Policies were launched to subsidize the interest on loans used to finance the construction of government-subsidized housing in urban areas. Construction on 5.11 million units of government-subsidized housing in urban areas was basically completed, and construction was begun on another 7.4 million units. Support was given to the renovation of dilapidated housing for 2.66 million poor rural households.

Spending on energy conservation and environmental protection came to 203.281 billion yuan, 96.4% of the budgeted figure and an increase of 3.2%. The shortfall is primarily due to spending on subsidies for encouraging the sale of energy-efficient vehicles with engine displacement of 1.6 liters or less being lower than anticipated. The total is made up of 34.453 billion yuan of central government spending and 168.828 billion yuan made in transfer payments to local governments. Support was increased for efforts to prevent and control air pollution in Beijing, Tianjin, Hebei, and their surrounding areas as well as in the Yangtze River and Pearl River deltas. Support was also given for the building of over 1,400 air monitoring stations across China. Trials were launched to comprehensively improve the conditions of rivers, covering each river's entire drainage basin. We moved ahead the trials for the areas along the Xin' an River basin to compensate each other for their impact on water quality, and moved forward with efforts to establish a mechanism for provinces to compensate each other for ecological damage or the costs of ecological protection. A total of 14,100 kilometers of pipe networks was constructed to complement urban sewage treatment facilities. Contiguous environmental improvement initiatives were launched in 13,112 villages, directly benefitting approximately 15.8 million people. Efforts were begun to ensure mineral resources are being used comprehensively, and improvements were made to the environment in contiguous mining areas. The trial to completely stop logging in key state-owned forest areas was launched in Heilongjiang Province. We supported the implementation of a new round of efforts to return 333,000 hectares of marginal arable land back into forest or grassland. This year's task of closing down outdated production facilities in 15 key industries including steel and cement was completed. We supported problem-solving in the development of technologies for new-energy vehicles as well as demos and promotional work for the vehicles, and encouraged the development of the energy conservation and environmental protection industries. We extended the scope of comprehensive demonstrations of energy conservation and emission reduction based on integrating financial policies. Efforts were stepped up to develop new energy and renewable energy.

Spending on transport totaled 426.98 billion yuan, 98.3% of the budgeted figure and an increase of 3.3%. Spending on stockpiling grain, edible oils, and other materials stood at 153.975 billion yuan, 110.5% of the budgeted figure and an increase of 21.6%. The excess is mainly due to an increase in central government spending on subsidizing interest payments made for stockpiling grain and edible oils and the expenses for purchasing japonica rice and corn from northeast China. Spending on national defense was 808.288 billion yuan, 100% of the budgeted figure and an increase of 12.2%. Spending on public security came to 212.027 billion yuan, 103.4% of the budgeted figure and an increase of 9.7%. Spending on general public services totaled 125.134 billion yuan, 100.5% of the budgeted figure and an increase of 3.1%.

3) Central government tax rebates and transfer payments to local governments

Central government tax rebates and transfer payments to local governments totaled 5.160445 trillion yuan, 99.5% of the budgeted figure and an increase of 7.5%. This figure includes 2.756739 trillion yuan in general transfer payments and 1.894072 trillion yuan in special transfer payments. General transfer payments accounted for 59.3% of total transfer payments, an increase of 2.2 percentage points over 2013.

(2) Budgets for government-managed funds

In 2014, revenue from government-managed funds nationwide came to 5.409338 trillion yuan, and expenditure from these funds amounted to 5.138775 trillion yuan.

Revenue from central government-managed funds totaled 409.751 billion yuan, 98.3% of the budgeted figure and a decrease of 3.3%. Adding the 90.713 billion yuan carried forward from 2013, revenue from central government-managed funds totaled 500.464 billion yuan in 2014. Expenditure from central government-managed funds totaled 431.954 billion yuan, 86.8% of the budgeted figure and an increase of 3.4%. Of this, central government spending was 296.392 billion yuan and transfer payments to local governments amounted to 135.562 billion yuan. A total of 68.51 billion yuan has been carried forward to 2015 from central government-managed funds.

Revenue from funds managed by local governments reached 4.999587 trillion yuan, an increase of 4.1%. This figure includes 4.26059 trillion yuan from the sale of state-owned land-use rights. Adding the 135.562 billion yuan in transfer payments from central government-managed funds, total revenue from local government- managed funds was 5.135149 trillion yuan. Expenditure from local government- managed funds totaled 4.842383 trillion yuan, an increase of 1.4%. This includes 4.120245 trillion yuan of spending from the proceeds of selling state-owned land-use rights.

(3) Budgets for state capital operations

In 2014, budgetary revenue from state capital operations nationwide totaled 202.344 billion yuan, and budgetary expenditure on state capital operations totaled 199.995 billion yuan.

Budgetary revenue from the central government's state capital operations totaled 141.091 billion yuan, 98.9% of the budgeted figure and an increase of 33.3%. Adding the 15.219 billion yuan carried forward from 2013, total revenue stood at 156.31 billion yuan. Budgetary spending on the central government's state capital operations came to 141.912 billion yuan, 89.9% of the budgeted figure and an increase of 45.1%. Of this, 18.4 billion yuan, an increase of 183.1%, was brought into the general public budget and spent on social security and other areas related to the people's quality of life. Surplus budgetary revenue from the central government's state capital operations, totaling 14.398 billion yuan, was carried over to 2015.

Budgetary revenue from state capital operations of local governments totaled 61.253 billion yuan, and total budgetary spending amounted to 58.083 billion yuan. Surplus budgetary revenue from state capital operations of local governments was carried forward to 2015.

(4) Budgets for social security funds

In 2014, revenue from social security funds nationwide totaled 3.918646 trillion yuan, 104% of the budgeted figure. This includes 2.91041 trillion yuan of insurance premiums and 844.635 billion yuan of government subsidies. Social security fund expenditure totaled 3.366912 trillion yuan nationwide, 103.3% of the budgeted figure. Revenue exceeded expenditure in 2014, leaving a surplus of 551.734 billion yuan, and the year-end balance reached 5.040876 trillion yuan after the surplus in 2014 was rolled over.

In general, fiscal operations were basically steady in 2014 and fresh progress has been made in fiscal reform and development. We owe this to the sound policymaking and firm leadership of the CPC Central Committee and the State Council; to the oversight, guidance, and strong support from the deputies of the NPC and the members of the CPPCC National Committee; and to the joint efforts and hard work of all regions, government departments, and all our people.

At the same time, we are soberly aware of the following difficulties and problems in fiscal operations: Under the current tax system, as our country's economic growth is slowing down and the PPI is continuously falling, the rate of growth in government revenue has also been falling significantly, indicating a clear trend towards moderate to slow growth, and non-tax revenue has been accounting for too big a share of the total revenue. Government expenditure continues to rise, and the structure of expenditure is becoming increasingly rigid. Some spending policies are fragmentary; and the design of our institutions still leaves room for improvement. Without deeper reform, spending would be impossible to sustain, thus placing enormous pressure on public finance in the medium to long term. All kinds of risks that were previously hidden are beginning to show. Although the risks of local government debt can, on the whole, be controlled, the task of defusing them is a formidable one. As a stream of measures to reform the fiscal and tax systems are being introduced, traditional thinking and routine practices are coming to clash with the new demands of reform, which makes it difficult to implement reform measures. As well as this, people's awareness of the importance of financial discipline is somewhat faint, and economic and financial laws and regulations are not strictly observed. During the implementation of budgets, problems such as the erosion, leakage, and fraudulent use of funds are not uncommon, meaning there is still a need to improve the standardization, security, and effectiveness of the use of funds. We view these problems as extremely important and will take effective measures to resolve them.