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REPORT ON THE WORK OF THE GOVERNMENT
Delivered at the First Session of the
11th National People's Congress on March 5, 2008
Wen Jiabao
Premier of the State Council 

    Fellow Deputies,
    On behalf of the State Council, I would now like to deliver to you a report on the work of the government over the past five years and on the arrangements for its work this year for your deliberation and approval and also for comments and suggestions from the members of the Chinese People's Political Consultative Conference (CPPCC).
    I. Review of the Work of the Past Five Years
    The past five years since the First Session of the 10th National People's Congress was a momentous period. Under the leadership of the Communist Party of China (CPC), governments at all levels and people of all the ethnic groups in China diligently followed the guiding principles set out at the 16th CPC National Congress and worked in concert and with dedication. We vigorously responded to the complex and volatile international environment, strove to overcome various difficulties hindering economic and social development, and prevailed over the sudden and severe outbreak of SARS and catastrophic natural disasters such as the recent snow and ice storms in the south that the region has rarely seen before. We made major achievements in reform, opening up and modernization, which attracted the attention of the world.
    - The economy reached a new high. China's GDP in 2007 reached 24.66 trillion yuan, an increase of 65.5% over 2002 and an average annual increase of 10.6%, rising from the sixth highest one in the world to the fourth. Total government revenue reached 5.13 trillion yuan, a 171% increase over 2002. Our foreign exchange reserves exceeded 1.52 trillion U.S. dollars.
    - The agricultural tax was rescinded, ending the centuries-old practice of farmers paying taxes. China's grain output rose four consecutive years to reach 501.5 million tons in 2007.
    - Major progress was made in the reform of state-owned enterprises (SOEs), the financial system, fiscal and taxation systems, the system of foreign trade and economic cooperation, and the administrative system. China has entered a new stage in developing a more open economy. Total volume of imports and exports reached 2.17 trillion dollars in 2007, raising China from the sixth largest trading nation in the world to the third largest.
    - Good progress was made in efforts to make China more innovative, and a number of major scientific and technological innovations with international impact were made. Manned space flights and our first moon exploration project were successfully carried out.
    - Free compulsory education was made available to all rural students, marking an important milestone in the history of the development of education in China. The basic frameworks for a public health system and a system of basic medical services covering both urban and rural areas have been put in place.
    - Steady improvement was made in the urban and rural system of public cultural services. Significant progress was made in reform of the cultural management system, and the development of cultural programs and cultural industries was accelerated. The Shanghai Special Olympics was successfully held. Preparations for the 2008 Olympics and Paralympics in Beijing and the 2010 World Expo in Shanghai proceeded smoothly.
    - Progress was made in developing democracy and the legal system and in enhancing law-based government. Greater efforts were made to safeguard people's rights and interests and ensure social fairness and justice.
    - People's living standards improved significantly. Fifty-one million urban jobs were created over the past five years. Urban per capita annual disposable income rose from 7,703 yuan in 2002 to 13,786 yuan in 2007, and rural per capita annual net income rose from 2,476 yuan to 4,140 yuan during the same period. The basic framework for a social safety net for both urban and rural areas was put in place. The number of people living in poverty was reduced every year.
    All these improvements fully demonstrate that during the past five-year period great strides were made in carrying out reform and opening up and building a moderately prosperous society in all respects. During this time the productive forces and overall national strength were significantly improved, social programs were comprehensively developed, people received even greater benefits and China's international standing and influence constantly grew.
    During the past five years we established and put into practice the Scientific Outlook on Development, worked hard on economic development, deepened reform and opening up, ensured the wellbeing of the people, improved their lives, and promoted social harmony. We made great efforts and accomplished a great deal.
1. Improving macroeconomic regulation to promote steady and rapid economic development.
    We endeavored to make macroeconomic regulation more proactive, responsive and effective, with the focus on resolving major problems affecting economic operation. Over the past few years, we tightened controls on the supplies of land and credit, raised market access requirements, adjusted financial and monetary policies as needed, improved industrial policies and the land policy, adjusted the economic structure, shored up weak links and effectively regulated economic operation to address problems such as overheated growth in fixed asset investment, excessive supplies of money and credit, excessively large trade surplus, and weakness in agriculture, the foundation of the economy, which could cause economic development to become unstable, unbalanced and unsustainable. In response to changes in the economy, we have repeatedly made timely adjustments in the required reserve ratio and the benchmark interest rates for savings and loans in financial institutions and rescinded or reduced export tax rebates for resource products and products whose production is energy intensive or highly polluting. These macroeconomic regulatory measures produced significant results, and China's economy maintained steady and rapid development throughout the five-year period, without experiencing major fluctuations.
    We adopted a series of major measures related to institutions, policies and investment to increase grain production and rural incomes as a matter of priority and strengthen agriculture as the foundation of the economy. We completely rescinded the agricultural tax, livestock tax and tax on special agricultural products throughout China, reducing the burden on farmers by an average of 133.5 billion yuan per year. In addition, we set up a subsidy scheme for agriculture, instituting direct subsidies for grain producers, subsidies for superior crop varieties, subsidies for the purchase of agricultural machinery and tools, and general subsidies for agricultural production supplies and providing incentives to major grain-producing counties and subsidies to counties and townships with serious financial difficulties. Investment in agriculture and rural areas was greatly increased. Central government allocations for agriculture, rural areas and farmers reached 1.6 trillion yuan over the past five years, including nearly 300 billion yuan that was used for developing rural infrastructure. Local governments also substantially increased their input. During the five-year period, an additional 6.667 million hectares of farmland was equipped with water-saving irrigation facilities, methane gas was made available to 16.5 million more households, 1.3 million kilometers of rural roads were built or upgraded, and safe drinking water was provided to an additional 97.48 million rural residents. A system for the prevention and control of major animal diseases was set up, and the spread of highly pathogenic avian influenza was prevented. These measures greatly encouraged farmers to grow more, gave a strong impetus to the development of a new socialist countryside and brought historic changes to rural China to the great satisfaction of hundreds of millions of rural people. Agricultural development played an important role in ensuring the overall stability and development of China's economy and society.
    We formulated the Outline of the National Program for Long- and Medium-Term Scientific and Technological Development, which contains comprehensive plans for the development of science and technology in China from 2006 through 2020 and calls for the launching of a number of major projects. This will have an important and far-reaching impact on efforts to strengthen China's capacity for independent innovation and make it an innovative country. Work in basic research and research in leading-edge technologies was intensified; a number of major innovations such as high-performance computers, third generation mobile communications, and super-hybrid rice were achieved; and a number of products that are competitive and carry Chinese intellectual property rights were developed. The central government spent 340.6 billion yuan on science and technology over the past five years. China's total investment in research, experimentation and development rose from the 128.8 billion yuan of 2002 to 36*** billion yuan in 2007, with its share in the GDP rising from 1.07% to 1.49%. Major progress was made in developing a system for technological innovation in which enterprises play a key role. The capacity of scientific and technological innovation to sustain and boost economic and social development was markedly increased.
    We formulated and implemented a series of industrial policies and special plans designed to improve and upgrade the industrial structure. Development of new and high technology industries in information, biology, aerospace, new energy sources, new materials and oceanography was accelerated. Efforts to boost the equipment manufacturing industry produced significant results. Development of modern service industries such as tourism, banking and distribution was accelerated. Great progress was made in the development of infrastructure and basic industries, marked by the completion of or smooth progress on a number of major projects. The Qinghai-Tibet Railway was opened to traffic a year ahead of time; the Three Gorges Project is fully playing its designed role in flood prevention, power generation and shipping; the projects to send electricity and gas from China's western region to the eastern region are fully operational; the project to divert water from southern China to northern China is progressing smoothly; and construction has been started on a number of major projects such as the Xiluodu Hydroelectric Plant, Hongyanhe Nuclear Power Plant, Beijing-Shanghai high-speed railway, a ten million-ton capacity oil refinery and a million-ton capacity ethylene plant. Major progress has been made in the prospecting and development of the Puguang Gas Field and the Nanpu Old field. Newly added power-generating capacity over the five years totaled 350 million KW, equivalent to all the capacity added between 1950 and 2002. A total of 192,000 kilometers of highways were built, including 28,000 kilometers of expressways. A total of 6,100 kilometers of new railway lines went into operation. An additional 568 berths that can handle ships larger than 10,000 tons were completed. The number of telecommunications users was increased by 494 million. All of the above measures effectively improved the capacity of the energy, transportation and communications sectors and strengthened the basis for further economic and social development.
    We gave high priority to conserving resources and protecting the environment. Obligatory targets for saving energy and reducing emissions were set in the Outline of the Eleventh Five-Year Plan for National Economic and Social Development. In the last two years, a general work plan for saving energy and reducing emissions was introduced; a system of targets for this work, a monitoring system, a system for assessing work performance and a system of accountability for reaching the targets were put in place; and a state plan to address climate change was promulgated. A large number of backward production facilities were shut down in accordance with the law. They include small thermal power plants with a total capacity of 21.57 million KW, 11,200 small coal mines, backward iron smelting facilities with a total capacity of 46.59 million tons, backward steel plants with a total capacity of 37.47 million tons and cement plants with a total capacity of 87 million tons. Ten major energy-saving projects were launched. Breakthroughs were made in carrying out desulfurizing projects for coal-fired power plants. The central government provided financial support for 691 projects to prevent and control water pollution in major river valleys. Work continued on ecological conservation projects such as those to protect natural forests and control the factors causing sandstorms in Beijing and Tianjin. During the five-year period, the area of farmland retired for forestation and other lands planted with trees amounted to 31.91 million hectares, and grazing land returned to natural grasslands totaled 34.6 million hectares. Protection of land and water resources was strengthened, with a total of 1.526 million hectares of farmland being upgraded, reclaimed or newly developed over the last five years. Thanks to the strong efforts of the whole country, encouraging progress was made in conserving energy and reducing emissions. In 2007 there was a 3.27% year-on-year drop in energy consumption per unit of GDP, and for the first time in recent years there was a reduction in both chemical oxygen demand and the total emission of sulfur dioxide, with the former down 3.14% and the latter down 4.66% from the previous year. People became more aware of the importance of conserving resources and protecting the environment and made greater efforts in this area.
    We followed a master strategy for regional development. Continued progress was made in the large-scale development of the western region, with central government financial support for key projects totaling over 280 billion yuan over the last five years. Substantial progress was made in infrastructure development and ecological and environmental conservation projects, and development of key areas and industries with local advantages was accelerated. We formulated and implemented the strategy of rejuvenating the old industrial bases such as northeast China, increased efforts to develop large grain production bases, made breakthroughs in reforming, reorganizing and upgrading SOEs, made major progress in using domestically-produced key equipment in place of imports, and made smooth headway in the trial to transform the economies of cities dependent on resource exploitation. The old industrial bases are now showing new signs of vitality. We formulated and implemented policies and measures to promote development in the central region and made accelerated progress in developing modern agriculture in major grain-producing areas. Major energy and raw material industries, the equipment manufacturing industry and the overall transportation system were further developed. The eastern region continued to lead in development, with significant gains in economic strength and overall improvement. The process of developing and opening up the special economic zones, the Shanghai Pudong New Area and the Tianjin Binhai New Area was accelerated. These major measures promoted a better distribution and more balanced development of regional economies.
2. Working hard on reform and opening up, concentrating on institutional development and innovation.
    Rural reforms were deepened across the board. Major progress was made in the current stage of the overall rural reform, mainly consisting of reform of town and township government bodies, reform of the rural compulsory education system and reform of the fiscal systems at the county and township levels. Government control of grain purchasing was lifted, and the purchase and sale of grain are now market based. Successful trials were carried out in reforming the system of collective forest rights. Smooth progress was made in the reform of supply and marketing cooperatives and state-owned farms.
    Continued progress was made in improving the basic economic system. We consolidated and developed the public sector of the economy, made progress in reform of the management system for state-owned assets and adjustment of the distribution and structure of the state sector of the economy, and set up and improved a system for investors of state assets. We accelerated the reform to institute a stockholding system in SOEs, and a number of large companies and conglomerates with the ability to compete internationally were formed. Reform of the postal service system proceeded smoothly, and encouraging progress was made in reforming the power, telecommunications, civil aviation and railway industries. The total value of assets of Chinese SOEs in 2006 grew by 60.98% compared to 2002, their total profits increased by 223%, and their tax contributions grew by 105%. The vitality of the state sector and its impact and influence on the economy as a whole were greatly enhanced. We formulated and implemented a series of policies and measures to foster a legal framework and market environment conducive to fair competition, and encouraged, supported and guided the development of the nonpublic sector, which includes individual-proprietorship businesses and private enterprises. As a result, the nonpublic sector of the economy is playing an increasingly bigger role in stimulating economic growth, creating jobs, increasing tax revenue, and invigorating the market.
    We vigorously promoted reform of the banking, fiscal and taxation systems. We resolutely carried out reform addressing the poor performance and greater financial risks of state-owned commercial banks. The Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank and the Bank of Communications were turned into stockholding companies and listed on stock markets. This brought about significant improvement in the quality of their assets and profitability as well as major changes in the banking industry. We resolutely carried out reform of the shareholder structure in listed companies and resolved this longstanding institutional problem that hindered the development of the securities market. Key state-owned insurance firms were reorganized and went public, promoting rapid development of the insurance industry. Substantive progress was made in making interest rates more market-based. We reformed the RMB exchange rate regime to gradually make the exchange rate more flexible. Comprehensive progress was made in reform of the system for managing foreign exchange. Reform of the fiscal and taxation systems was deepened, and the system of transfer payments and the system of public finance were steadily improved. The central government turned over 4.25 trillion yuan in transfer payments to local governments from 2003 to 2007, with 87% of it allocated to the central and western regions. A budget system for managing state capital was introduced in some enterprises on a trial basis. We launched and expanded trials to reform the value-added tax. The income tax systems for domestic and overseas-funded enterprises were unified. A unified state civil servant salary system based on both position and rank was set up, and the system of subsidies and allowances was basically standardized. Further progress was made in reform of the investment system and pricing system.
    Work to develop the market system was intensified. Market forces played an increasingly important role in trade in the factors of production. The modernization of commodity distribution was accelerated. Significant achievements were made in the effort to rectify order in the markets for land and mineral resources and improve the quality of products and the safety of food and drugs. Protection of intellectual property rights was strengthened, and we severely cracked down on violations of the law such as the production and sale of counterfeit goods, pyramid schemes, commercial fraud, piracy and infringement on others' rights.
    We continued to open China wider to the outside world. We honored all the commitments we made when we entered the World Trade Organization and made all the required adjustments for the transition period. We deepened reform of the externally oriented economic system to facilitate trade and investment. We lifted controls over access to foreign trade, greatly lowered tariffs, rescinded non-tariff measures such as import quotas and permits, and opened banking, commerce, telecommunications and other service sectors wider. There was gradual improvement in the mix of imports and exports. There was further improvement in the utilization of foreign capital. The "go global" strategy was resolutely implemented and significant results were obtained in mutually beneficial economic cooperation with other countries.
3. Strengthening all aspects of social development, ensuring the wellbeing of the people and improving their lives.
    We steadfastly carried out overall planning for economic and social development, accelerated the development and reform of social programs in education, health, culture and sports and worked hard to resolve problems affecting the vital interests of the people.
    Education. Public expenditures on education in China reached 2.43 trillion yuan over the five-year period, a 126% increase compared to the previous five-year period. Funding for rural compulsory education is now fully provided by the government budget. All the 150 million students receiving compulsory education in rural areas are exempt from paying tuition and miscellaneous fees and are supplied with free textbooks, and living allowances are provided to the 7.8 million students from poor families who stay in school dormitories. The plan to make nine-year compulsory education basically universal and to basically eliminate illiteracy among young and middle-aged adults in the western region was implemented on schedule. The state allocated special funds to support the renovation of dilapidated buildings at more than 22,000 rural primary and secondary schools and the building of more than 7,000 schools with student dormitory facilities. Distance education now covers 360,000 rural primary and middle schools, making quality education available to more rural students. Greater efforts were made to develop vocational education, with the student population reaching 20 million at secondary vocational schools and 8.61 million at vocational colleges in 2007. A total of 11.44 million students were enrolled in undergraduate and graduate programs in regular institutions of higher learning. More effort was put into developing key disciplines in institutions of higher learning. A system of government scholarships and financial aid to students in regular undergraduate institutions, vocational colleges and secondary vocational schools was instituted and improved, and its funding from the central government budget was increased from 2.05 billion yuan in 2006 to 9.8 billion yuan in 2007. This enabled over 20% of the students in institutions of higher learning and more than 90% of the students in secondary vocational schools to benefit from financial aid and allowed schools to greatly raise the amount of aid offered. An experiment to provide free education to education students at normal universities directly under the Ministry of Education was launched in 2007. Major progress was made in providing equitable education opportunities for all.
    The strategy of reinvigorating China through development of human resources was extensively applied. Great efforts were made to train Chinese personnel, bring in needed personnel from other countries and make wise use of skilled personnel of all types, thus strengthening the ranks of high-caliber, highly skilled personnel in China.
    Health. Total government expenditures on medical and health care in China over the five-year period reached 629.4 billion yuan, a 127% increase compared to the previous five-year period. The funding was mainly used to develop the public health service system, the medical service system and the medical security system, and basically complete the formation of the disease prevention and control system and emergency medical response system with a fairly comprehensive range of functions, covering both urban and rural areas. The number of diseases covered by the state plan for immunization and disease prevention was increased from 7 to 15, and AIDS, tuberculosis, schistosomiasis and other major communicable diseases are now treated free of charge. The state allocated funds to renovate or build 18,800 town and township health clinics, 786 county hospitals, 285 county traditional Chinese medicine hospitals and 534 county health centers for women and children, and equip 11,700 town and township health clinics with medical equipment, significantly improving conditions for providing medical and health care services in the countryside. More than 24,000 community health clinics were set up in China, further improving the new system of medical and health care services in urban areas. Further progress was made in carrying out population and family planning programs, and the birthrate remained stable at a low level. People's health continued to improve, infant and maternal mortality rates dropped significantly, and average life expectancy reached 73 years in 2005. These are momentous achievements for China, a developing country with a population of 1.3 billion.
    Employment. The government continued to follow and improve the policy that strongly promotes employment and to adopt fiscal, taxation and financial measures to increase employment. Expenditures for employment programs from the central government budget in the form of subsidies totaled 66.6 billion yuan over the five-year period. Urban and rural systems for providing public employment services were further strengthened. Efforts were intensified to increase employment and reemployment in a well-planned way, and training in vocational skills was comprehensively strengthened. As a result, more than ten million urban people got jobs and eight million rural workers found work in nonagricultural sectors per year on average. The problem of finding other employment opportunities for workers laid off from SOEs was basically solved, and the work of incorporating basic cost of living allowances for laid-off workers into the unemployment insurance system was completed. The employment situation remained basically stable despite a large increase in the total workforce and great pressure on employment.
    Social safety net. Governments at all levels spent a total of 1.95 trillion yuan on building up the social safety net over the five-year period, a 141% increase compared to the previous five-year period. Continued improvement was made in the basic old-age insurance system for urban workers, with the number of participating workers exceeding 200 million in 2007, an increase of more than 54 million compared to 2002. Trials to fully fund personal accounts for basic old-age insurance were expanded to 11 province-level administrative units. Basic pensions for enterprise retirees were raised three years in a row beginning in 2005. A total of 329.5 billion yuan was allocated for old-age insurance programs from the central government budget in the form of subsidies over the last five years. The number of urban workers participating in basic medical insurance reached 180 million in 2007, nearly twice the number in 2002. The trial of basic medical insurance for urban residents was launched in 88 cities. Continued improvement was made in the new system of rural cooperative medical care, which now covers 86% of all counties and 730 million rural residents in China. Funds to support the national social safety net totaled 414 billion yuan, an increase of 289.8 billion yuan over 2002. Establishment of the urban and rural emergency aid system was basically completed. The system of basic cost of living allowances for urban residents was improved, with gradually rising standards and allowances. A system of basic cost of living allowances was established in all rural areas of China in 2007, covering 34.519 million rural residents. The systems provide a fundamental institution to assist poor people in urban and rural areas to meet basic living expenses. Further progress was made in developing social welfare, providing special assistance to entitled groups and developing charity programs and programs to help people with physical and mental disabilities. Efforts to combat disasters and provide disaster relief were greatly strengthened, with total expenditures from the central government budget reaching 55.1 billion yuan for the five-year period. This helped restore normal working and living conditions for disaster victims.
    Culture and sports. Government expenditures for culture and sports programs totaled 310.4 billion yuan for the five-year period, a 130% increase over the previous five-year period. The basic elements of a public cultural services system at the county and township levels were put in place, and basically every county now has a library and cultural center. Substantive progress was made in setting up local cultural facilities such as the projects to set up a national shared databank of cultural information and resources and extend radio and television coverage to all villages. Philosophy, the social sciences, the press and publishing, radio, film and television, literature and art thrived. Protection of cultural relics and intangible cultural heritage was strengthened. Cultural exchanges with other countries were intensified. Development of public sports facilities in urban and rural areas was accelerated, mass sports activities developed vigorously, and Chinese athletes did well in international competitions.
    Personal income and consumer spending. Vigorous efforts were made to increase the incomes of urban and rural residents, especially low-income persons. The minimum wage was increased. The problem of arrears in the wages of rural migrant workers in urban areas was basically resolved. The standards for financial aid to key entitled groups were increased four times, and plans were implemented to resolve the practical problems of demobilized military personnel. The tax on interest earnings from individual savings deposits was lowered and the earnings threshold for the individual income tax was raised. There was a general increase in family assets. Upgrading of consumer spending proceeded at a faster pace, and there was a great increase in the number of family-owned cars and rapid spread in the use of cell phones, computers and Internet services. The number of people going on vacations increased several fold. There was further improvement in housing conditions, encouraging progress was made in improving conditions in shantytowns, and much more public services were made available to urban and rural residents.
    Public administration. Work in this area was concentrated on protecting the legitimate rights and interests of the people and resolving social tensions. We formulated and implemented policies and measures for protecting the legitimate rights and interests of rural migrant workers in urban areas. We devoted a great deal of effort to resolving infringements on the interests of the public related to land expropriation and requisition, housing demolition, enterprises converting to a stockholding system and environmental protection. Improvement was made in the handling of complaints made by individuals through letters and visits. We paid very close attention to improving workplace safety and the safety oversight system, instituted a responsibility system for workplace safety and improved related legislation. The public security system for crime prevention and control was further strengthened, and overall crime control work was intensified. We combated criminal activities in accordance with the law, effectively protected China's security and maintained law and order.
    Taking advantage of the rapid development of the economy and significant improvement of public finance, we worked hard to resolve some longstanding problems. We sold off nonperforming assets of state-owned commercial banks, made alternate arrangements for nonperforming loans and long-term non-paying accounts of rural credit cooperatives, eased the long-term debts of SOEs, gradually eased policy-related losses of state-owned grain enterprises, cleared up overdue tax rebates for exports, and improved the policy for paying compensation for requisition of land for large and medium-sized reservoirs and assisting people displaced by reservoir projects. Resolution of these problems played an important role in promoting economic and social development.
    We made major progress over the past five years in enhancing democracy and the legal system, building national defense and the military, doing our work related to Hong Kong, Macao and Taiwan, and conducting diplomacy.
    We made steady progress in improving socialist democracy and the socialist legal system. Governments at all levels conscientiously accepted the oversight of the people's congress and its standing committee at the corresponding level; voluntarily accepted the democratic oversight by CPPCC committees; carefully listened to the views of the democratic parties, federations of industry and commerce, persons without party affiliation and people's organizations; solicited suggestions of experts, scholars and the general public in a variety of forms; and accepted the oversight of the media and all sectors of society. Governments at all levels made public announcements and held public hearings before making major decisions. We stepped up efforts to develop autonomy in urban community and village administrative bodies and further improved the democratic system at the local level. During the past five years the State Council submitted 39 bills to the Standing Committee of the National People's Congress and formulated or revised 137 administrative regulations. We explored ways to set up mechanisms and systems for orderly public participation in government legislation and published 15 draft laws and drafts of administrative regulations to solicit comments from the public. We carried out a thorough review of current administrative rules and regulations. We adhered to the Law on Regional Ethnic Autonomy and carried forward the programs to promote unity and progress among ethnic groups. The policy on freedom of religious belief was comprehensively implemented, and the administration of religious affairs was put on a more solid legal footing and further standardized. We comprehensively implemented the policy on matters related to overseas Chinese nationals and protected the legitimate rights and interests of overseas Chinese nationals, returned overseas Chinese nationals and their relatives.
    We stepped up all efforts to modernize the military. We vigorously pressed ahead with the revolution in military affairs with Chinese characteristics. We adjusted and reformed the military's structure and staffing and its related policies and systems and smoothly cut its size by 200,000 personnel. We made historic achievements in strengthening national defense and the military. The People's Liberation Army and the People's Armed Police Force made major contributions to safeguarding China's sovereignty, security and territorial integrity and to promoting social harmony and stability.
    We adhered to the principle of "one country, two systems" and acted in strict accordance with the Basic Law of the Hong Kong Special Administrative Region and the Basic Law of the Macao Special Administrative Region. We implemented the Closer Economic Partnership Arrangement between the mainland and the regions of Hong Kong and Macao. Both regions remained thriving and stable.
    We resolutely opposed and foiled secessionist activities aimed at Taiwan independence, thereby protecting China's sovereignty and territorial integrity and safeguarding peace in the Taiwan Straits. We carried out a number of measures to make it easier for people to visit between the two sides and for economic, scientific, educational, cultural and sports exchanges to take place in order to promote the peaceful and steady development of cross-Straits relations.
    We actively promoted exchange and cooperation with other countries, made major progress in conducting diplomacy on all fronts, and resolutely safeguarded and developed China's interests. China stepped up dialogue with the major countries and increased trust and expanded cooperation with them. China-U.S. relations developed steadily, the China-Russia partnership of strategic coordination reached a new height, China-Europe cooperation in all areas went from strength to strength, and China-Japan relations improved. Good-neighborly relations with surrounding countries were further strengthened, further achievements were made in regional cooperation, and China's solidarity and cooperation with other developing countries entered a new stage. We successfully carried out a series of major multilateral diplomatic activities. We appropriately responded to new challenges in the international arena, actively and responsibly participated in efforts to resolve global issues, and played an important and constructive role in the resolution of issues concerning international and regional hotspots.
    We paid close attention to self-reform and self-improvement of the government during the five-year period. This government took scientific and democratic policy-making, law-based administration and better administrative oversight as the three basic principles for its work. We formulated the Program for Advancing All Aspects of Government Administration in Accordance with the Law and promoted change in the way the government functions and innovations in management, thereby improving public administration and public services. We diligently carried out the Administrative Permit Law and promoted reform of the system of administrative examination and approval. As a result, departments of the State Council eliminated or streamlined a total of 692 items requiring examination and approval. We promoted greater openness in government affairs, improved the system for releasing information, and increased the application of e-government. Establishment of a national emergency response management system was basically completed. Oversight work such as supervision and auditing was quite effective. Further improvement was made in education and training of civil servants and in developing a legislative framework for civil-service administration. We worked unceasingly to combat corruption and improve the conduct of the government, made good progress in combating bribery in business, uncovered a number of violations of laws and regulations and cases of neglect and dereliction of duty, and punished corrupt persons.
    We learned many valuable lessons in our experiences over the last five years. The main ones are as follows.
    First, we must continue to liberate our thinking. Liberating our thinking and following a realistic and pragmatic approach is the Party's ideological line. We must proceed from reality in everything we do, eliminate superstition, break the shackles of outdated ideas, respect the people's pioneering spirit, boldly explore new ways, take concrete action, be creative, and keep up with the times to ensure that the cause of socialist modernization retains its great vitality.
    Second, we must steadfastly apply the Scientific Outlook on Development. This is a major strategic concept for developing socialism with Chinese characteristics and an important guiding principle for China's economic and social development. We must continue to take development as the top priority, concentrate on changing the way the economy develops, and adjust the economic structure to improve the quality and efficiency of economic growth. We must always put people first, attach great importance to overall planning, and promote comprehensive, balanced and sustainable development. Only by thoroughly applying the Scientific Outlook on Development can we achieve sound and rapid economic and social development and promote social harmony.
    Third, we must adhere to the reform and opening up policy. Reform and opening up is a major and crucial choice that is shaping the destiny of contemporary China. We need to unswervingly promote reform in economic and political institutions, develop socialist democracy, improve the socialist market economy, liberate and develop the productive forces, promote social fairness and justice, and achieve all-round personal development. Opening up is also a kind of reform, and a nation cannot become strong if it is not open and inclusive. We must continue to pursue reform and opening up throughout the course of socialist modernization and never deviate from this policy.
    Fourth, we must continue to exercise effective macroeconomic regulation. Both macroeconomic regulation and market forces are components of the socialist market economy. We need to make better use of the basic role of market forces in allocating resources, revitalize enterprises and improve their competitive edge. At the same time, we need to improve macroeconomic regulation, continue to carry out macroeconomic regulation mainly through economic and legal means, and get the complete range of government policies to fully play their role. We must continue to deal with each situation on its own merits, encourage growth in some sectors and discourage it in others as the situation requires, and refrain from taking a uniform approach to different situations or putting on the brakes without good reason. We must continue to draw lessons from our experiences, make policy adjustments as needed and be result-oriented. We must integrate the use of market forces with macroeconomic regulation in order to ensure that the economy remains vigorous, performs well, and develops in a sustainable, healthy and balanced way.
    Fifth, we must continue to run the government for the people. All the power of the government comes from the people, and running the government for them is a lofty mission of governments at all levels. We must never forget that serving the people wholeheartedly is our purpose, and make sure that the aim and outcome of the work of the government is to fulfill, safeguard and develop the fundamental interests of the overwhelming majority of people. We need to attach greater importance to ensuring the well-being of the people and improving their lives, in particular showing concern for urban and rural residents with low incomes and helping them make ends meet in their daily lives, in order to ensure that all of the people share in the fruits of reform and development. We must always keep in mind that everything belongs to the people, do everything for their benefit, rely on them in everything we do and attribute all our successes to their efforts. Only by doing so can we enjoy the broadest and most reliable support from the people and draw from them the strength for ensuring success in all our endeavors.
    Sixth, we must continue to run the government in accordance with the law. Abiding by the Constitution and laws is a fundamental principle for all the work of the government. We need to exercise our power and perform our functions and responsibilities within the jurisdiction stipulated by law and in accordance with legal procedures, improve government legislative work, standardize administrative law enforcement, improve administrative oversight, develop law-based government and enhance our ability to carry out administrative functions in accordance with the law. We must ensure that government administration fully complies with the law, that power comes with responsibility, that there is proper oversight on the exercise of power, that reparation is paid for infringement of rights, that any violation of the law is prosecuted, and that power is exercised in a transparent manner. This is the only way to ensure that the power entrusted to us by the people is always exercised in their interests.
    We are also clearly aware that there are still many problems affecting China's economic and social development and the work of the government, and that changes in the domestic and international environment present many new challenges and risks.
    - There are still some prominent issues and deep-rooted problems affecting economic performance. China has experienced overheated growth in fixed asset investment, excessive supplies of money and credit, and imbalance in its international payments in recent years. Longstanding structural problems and the extensive pattern of growth remain serious problems. There is a lack of balance between investment and consumption, with the investment rate still running too high. Development of primary, secondary and tertiary industries is not in balance, with too much investment in primary industry, particularly heavy industry, but too little investment in the service industry. China's capacity for independent innovation is still weak and the price paid for economic growth in terms of resource consumption and environmental pressure is too great. Agriculture, the foundation of the economy, remains weak. The difficulty of maintaining steady agricultural development and keeping the incomes of farmers increasing has grown, and the growing development gap between urban and rural areas and between regions has not been checked. In particular, the institutional factors hindering economic development remain serious, making institutional reform a daunting task.
    - More work needs to be done to resolve problems affecting the vital interests of the people. The current price hikes and increasing inflationary pressures are the biggest concern of the people. Last year's consumer price index (CPI) rose by 4.8% year-on-year, mainly due to large increases in the cost of food and housing. There are a variety of factors behind the price increases. Though the domestic prices of farm products have remained low for many years and some of the recent price increases were therefore overdue and somewhat reasonable, price increases nevertheless have a great impact on people's lives, especially on the lives of the low-income sector of the population. The prices of primary commodities on the international market have risen considerably in recent years, which directly puts upward pressure on domestic prices. Because factors driving prices up are still at work, upward pressure on prices will remain great this year. In addition, prices of the means of production have continued to rise and real estate prices have risen steeply, making the task of holding down inflation difficult. There are still quite a few problems in employment, the social safety net, education, medical and health care, income distribution, housing, product quality and safety, workplace safety and public security, and we need to work harder to resolve them.
    - Both uncertainties in the international economic environment and potential risks have increased. As economic globalization proceeds, the Chinese economy becomes increasingly tied to the world economy. The current imbalance in the global economy is only getting worse and global economic growth is slowing, making international competition even fiercer. The impact of the U.S. sub-prime mortgage crisis is expanding, the value of the dollar is continuing to fall, and there is greater risk in international financial markets. Grain prices are rising and prices for petroleum and other primary products remain high in the international market. Trade protectionism has gotten worse, and trade frictions have increased. The effect of certain political factors in the international arena on world economic trends cannot be overlooked. All this could adversely affect China's economic development. China is now in a critical period in its reform and development, and we must be fully prepared for changes in the international environment and become better able to defuse risks.
    - The government's self-improvement efforts and administration need to be strengthened. We are keenly aware that the work and accomplishments of the government still fall somewhat short of what circumstances require and the people expect. The functions of government have not been completely transformed, and public administration and public services are still weak. Some government departments have overlapping responsibilities, their powers and responsibilities are not well matched, some try to shirk their responsibilities, and their performance is poor. Some government employees have an inadequate sense of responsibility toward the public and are not competent enough. Oversight mechanisms and checks on government authority are not strong enough. The problems of formalism and bureaucratic behavior are fairly common, and fraud, extravagance and waste, and corruption are quite serious.
    We must remain clear-headed at all times, be more mindful of potential danger, be highly responsible to the country and the people, maintain a high sense of mission and urgency, work even more industriously, and successfully carry out all of the government's work.
    Fellow Deputies,
    The achievements of the past five years have not come easily. They were built on a foundation laid through many years of reform and opening up, and are attributable to the correct leadership of the Party Central Committee with Comrade Hu Jintao as General Secretary, which has effectively managed the overall situation. Credit also goes to the hard work and concerted effort of the people of all the ethnic groups in China, and to the support and assistance of overseas Chinese nationals and foreign friends. Displaying indomitable determination, courage and will, the Chinese people have overcome untold difficulties and challenges and accomplished major tasks. On behalf of the State Council, I would like to sincerely thank the people of all the ethnic groups, the democratic parties, the people's organizations and people from all sectors of society. I would like to express my sincere thanks to our compatriots in Hong Kong and Macao special administrative regions and in Taiwan, as well as overseas Chinese nationals. I would like to thank governments of other countries, international organizations and foreign friends of China around the world for their understanding of and support for China's modernization.
II. Major Tasks for 2008
    This is the first year for comprehensively implementing the guiding principles set out at the Seventeenth CPC National Congress. We face arduous tasks in reform and development, and it is very important for us to successfully carry out the work of the government.
    The basic guidelines and major tasks for the government's work are as follows: we must hold high the great banner of socialism with Chinese characteristics; take Deng Xiaoping Theory and the important thought of Three Represents as our guide; fully apply the Scientific Outlook on Development; attach greater importance to improving macroeconomic regulation, promoting reform, opening up and independent innovation, adjusting the economic structure and improving the quality of development, conserving resources and protecting the environment, and improving people's lives and promoting social harmony; promote socialist economic, political, cultural and social development; and accelerate the process of building a moderately prosperous society in all respects.
    We have set the following targets for economic and social development in 2008: on the basis of improving the economic structure, productivity, energy efficiency and environmental protection, the GDP should grow by about 8%, and the rise in the CPI should be held at around 4.8%. Ten million jobs should be created in urban areas, and the rate of registered urban unemployment should be kept at around 4.5%. Some improvement should be made in the balance of payments.
    It is important to note here that in setting the GDP growth target at around 8% for 2008, we have taken into account a variety of domestic and international factors. Our goal is to maintain both steady and fast economic growth, and guide all sectors of society to concentrate on changing the pattern of development, deepening reform and accelerating social development. The different regions should not just seek faster growth or compete with each other to have the highest growth rate. We should promote both sound and fast economic and social development. The major considerations in setting the target for keeping the CPI this year at around 4.8% are as follows: last year's price increases are still exerting a fairly strong influence and quite a few factors are creating inflationary pressure, making it difficult to bring price increases under control. At the same time, we have to take into consideration the ability of individuals, enterprises and all sectors of society to tolerate price increases and try our best to avoid sharp price increases. To attain the targets and accomplish the tasks for this year's economic and social development, we must adhere to the following principles: we must make progress while maintaining stability and aim for fast yet steady economic development. We must give priority to the quality rather than speed of development and accelerate improvement in the pattern of economic development. We must pursue reform and opening up and attach great importance to promoting institutional improvements and innovations. We must put people first and accelerate social development, with the focus on improving people's lives. The primary task for macroeconomic regulation this year is to prevent fast economic growth from becoming overheated growth and keep structural price increases from turning into significant inflation. There are quite a few uncertainties in the current economic situation at home and abroad, so we need to keep close track of new developments and problems, properly size up situations and take prompt and flexible measures to respond to them while keeping our feet firmly rooted in reality. We need to maintain the appropriate pace, focus and intensity of macroeconomic regulation to sustain steady and fast economic development and avoid drastic fluctuations in the economy.
We need to concentrate on the following nine tasks this year:
    1. Improving macroeconomic regulation to maintain fast yet steady economic development.
    In view of the current domestic and international economic situation we need to follow a prudent fiscal policy and a tight monetary policy this year to accomplish the tasks for macroeconomic regulation. Continuing to follow a prudent fiscal policy means that we must ensure the continuity and consistency of fiscal policy, get public finance to fully play its important role in promoting structural adjustment and balanced development, and increase expenditures to shore up weak links, improve people's lives and deepen reform. In addition, we need to further reduce the budget deficit and the volume of long-term development treasury bonds. The deficit for the central government budget this year is set at 180 billion yuan, 65 billion yuan less than last year. We plan to issue 30 billion yuan of treasury bonds for investment, 20 billion yuan less than last year, and increase allocations from the central government budget for general development, bringing total central government investment in development projects up to 152.1 billion yuan. We will continue to adjust the structure of government spending and investment by greatly increasing spending on agriculture, rural areas and farmers, the social safety net, medical and health care, education, culture, energy conservation and emissions reduction, and construction of low-rent housing. We will work hard to increase revenue and reduce expenditures, tighten tax collection and management in accordance with the law, improve management of non-tax revenue, and control regular expenditures. We need to reform the management of government investment to improve the performance of investments.
    Government revenue surplus must be used wisely. Total government revenue exceeded the targeted figure by more than 723.9 billion yuan last year, including 416.8 billion yuan in the central government budget. Surplus revenue should be concentrated on solving problems that have a direct bearing on people's lives, making institutional and structural improvements and strengthening weak links. Spending on the following items will be increased in accordance with the law: rebates on the consumption tax and value-added tax and general transfer payments to local governments; agriculture, forestry, water conservancy projects, education, culture, science, the social safety net, medical and health care, legal aid, construction of low-rent housing, energy conservation, emissions reduction and environmental protection; and resolution of debts for rural compulsory education, debts of state-owned grain enterprises and other long-overdue payments. In addition, the budget deficit should be reduced by 45 billion yuan and the central budget stability and regulation fund should be increased by 103.2 billion yuan.
    The decision to follow a tight monetary policy was based on the following considerations: the strong possibility of a resurgence in fixed asset investment, continued excessive supplies of money and credit, the still-unsolved problem of excess liquidity, and considerable inflationary pressure. For these reasons, we must improve financial regulation to control the excessively rapid growth in the supplies of money and credit.
    First, we will step up efforts to curb excess liquidity by using a combination of open market operations and the required deposit reserve ratio. We will make appropriate use of the lever of interest rates. We will improve the RMB exchange rate regime to make the exchange rate more flexible.
    Second, with the focus on improving the credit structure, we will strictly follow requirements for granting loans and guarantee some loans while restricting others. We will limit the increase in long- and medium-term loans, particularly to enterprises that are energy intensive or highly polluting and enterprises in industries with excess production capacity. We will make innovations and improvements in bank credit services, improve the systems of guarantees and interest discounts, and increase credit support for agriculture, rural areas, farmers, service industries, small and medium-sized enterprises, independent innovation, energy conservation, environmental protection, and balancing regional development.
    Third, we will deepen reform of the foreign exchange administration system. We will improve the system for foreign exchange settlements and sales and payments in foreign exchange, tighten oversight on the flow of capital across borders, and move steadily toward making the RMB convertible for capital accounts. We will develop new channels and means for using foreign exchange reserves. Comprehensive measures will be adopted to improve the balance of payments.
    One major task for macroeconomic regulation this year is to prevent the overall price level from rising rapidly. To fulfill this task, we must take powerful measures to increase effective supply while curbing excessive demand.
    First, we must expand production, especially the production of the basic necessities of life such as grain, vegetable oil and meat as well as other commodities in short supply. We must also earnestly implement policies and measures designed to support production and ensure coordination in the production, transport and sale of products.
    Second, we must strictly control industrial use of grain and grain exports. The reckless expansion of the capacity for intensive corn processing and construction work on such projects that violate regulations must be stopped.
    Third, we need to speed up improvement of the reserve system, improve methods for adjusting reserves and import and export volumes, and appropriately increase imports of major consumer goods that are in short supply on the domestic market.
    Fourth, we need to ensure that the timing and the size of government adjustments to prices are appropriate, and necessary adjustment of prices of resource products and public services should also be strictly controlled to prevent waves of price increases.
    Fifth, we need to improve the early-warning system to monitor supply and demand and price changes of principal agricultural products and primary products, and put in place a plan for responding to drastic changes in market supply and demand and prices.
    Sixth, we must strengthen market and price oversight and pay close attention to the oversight and inspection of prices and charges related to education, medical care, drugs, agricultural supplies, agriculture, rural areas and farmers. Illegal activities such as colluding or hoarding to drive up prices will be punished in accordance with the law.
    Seventh, we need to promptly improve and implement measures to aid the low-income sector of the population. In particular, we need to increase subsidies to poor people and students from poor families to ensure that their basic living standards do not drop because of price increases.
    Eighth, we must work to make sure that the prices of the means of production, particularly agricultural supplies, do not rise rapidly.
    Ninth, we will continue to implement the system of provincial governors assuming responsibility for the "rice bag" (grain supply) program and city mayors for the "vegetable basket" (non-staple food supply) program.
    Governments at all levels must give high priority to keeping prices stable because price stability has a direct bearing on the quality of people's lives. The country currently has an adequate stock of grain, and the supply of major manufactured consumer goods exceeds demand. We can ensure adequate supply in the market and basic price stability as long as governments at all levels work to improve their leadership, diligently implement all policies and measures, and mount a concerted effort from the highest to the lowest level. The recent disaster resulting from snow and ice storms caused significant losses to China's economy and made life very difficult for disaster victims. We will continue the work of repairing the damage and minimizing losses from the disaster. Affected infrastructure will be promptly repaired, with the focus on restoring power grids. Agricultural production will be resumed as soon as possible. We will closely coordinate supplies of coal, electricity, petroleum and transportation to help disaster victims get back on their feet. In addition, we will learn from this large-scale natural disaster. We must accelerate development of infrastructure, including electricity, transportation and communications, to improve its capacity to resist disasters and maintain normal operations. We must improve the systems and mechanisms for responding to disasters to increase our ability to prevent and handle emergencies. We must step up research to better understand the features and patterns of natural disasters under modern conditions and improve our ability to prevent and mitigate them.