The following is the full text of the Report on the Work of the Government delivered by Premier Wen Jiabao at the Fourth Session of the Tenth National People's Congress on March 5, 2006.

Report of the Work of the Government

(Delivered at the Fourth Session of the Tenth National People's Congress on March 5, 2006)

Wen Jiabao

Premier of the State Council

Fellow Deputies,

On behalf of the State Council, I would like to present to you the following report on the work of the government for your deliberation and approval. I also welcome comments and suggestions on my report from the members of the National Committee of the Chinese People's Political Consultative Conference.

I Review of the Work of the Past Year

Major achievements were made in 2005 in the socialist modernization drive.

-- Economic growth was fast yet steady. China's GDP reached 18.23 trillion yuan in 2005, an increase of 9.9 percent over the previous year. Government revenue exceeded 3 trillion yuan, 523.2 billion more than the previous year. The consumer price index rose by 1.8 percent. China's economy was in good shape and characterized by fast growth, improved economic returns and stable prices.

-- Major steps were taken in reform and opening up. Breakthroughs were achieved in some key areas. China's import and export volume totaled 1.42 trillion U.S. dollars, an increase of 23.2 percent. Total foreign direct investment actually used reached 60.3 billion dollars, and the country's foreign exchange reserves totaled 818.9 billion dollars at the end of 2005.

-- Continued progress was made in social programs. Science and technology, education, culture, health, sports and other undertakings developed in an all-round way. The success of the Shenzhou VI manned space flight shows that China has reached world-class levels in some key areas of science and technology.

-- People's lives continued to improve. A total of 9.7 million urban residents entered the workforce for the first time last year. Urban per capita disposable income rose to 10,493 yuan, an increase of 9.6 percent after adjusting for inflation, and rural per capita net income grew to 3,255 yuan, an increase of 6.2 percent after adjusting for inflation.

China took another substantial step forward on the road of building a moderately prosperous society in all respects.

We adopted a scientific outlook on development to guide China's overall economic and social development last year. We mainly undertook the following tasks.

1. Solving the major problems affecting economic performance. We continued to exercise effective macroeconomic regulation in accordance with the principle of taking different approaches to different situations and encouraging the growth of some sectors while discouraging the expansion of others. We used a combination of fiscal, tax, monetary and land policies to curb overheated growth in fixed asset and real estate investment and ballooning housing prices. In addition, we increased investment in weak links such as agriculture, energy, transport, and social programs to promote balanced development and provide momentum for future development. We improved economic regulation and reduced the pressure on tight supplies of coal, electricity, and petroleum and on the overloaded transportation system, thus ensuring fast yet steady growth of China's economy.

2. Promoting economic restructuring and change of the pattern of economic growth. Work related to agriculture, rural areas and farmers was further intensified. The agricultural tax was rescinded in 28 provinces, autonomous regions and municipalities directly under the central government, and the livestock tax was rescinded nationwide. We increased subsidies to grain producers and transfer payments to major grain-producing counties and financially strapped counties, set floor prices for the purchase of key grain varieties in some major grain-producing areas, and increased rural incomes through a variety of channels. Last year, 297.5 billion yuan from the central government budget was spent on agriculture, rural areas and farmers, a year-on-year increase of 34.9 billion yuan. Having risen considerably the previous year, total grain output rose again by 14.54 million tons to 484.01 million tons. The increased overall agricultural capacity, stable increase in grain production and steady increase in rural incomes provide the foundation for ensuring fast yet steady economic development and social stability.

In industrial restructuring, we formulated and implemented development programs and industrial policies for energy, important raw material production, equipment manufacturing and other sectors, and adopted policy measures to encourage development of the wholesale and retail industry. We guided and supported major industries to ensure their sound development and closed down a number of production facilities that had backward equipment, wasted energy, created serious pollution and were unsafe.

We paid particular attention to energy and resource conservation and environmental protection and laid out tasks, policies and measures for building a resource-conserving society and developing a circular economy in order to change the pattern of economic growth. We launched 178 major projects that save energy and water and comprehensively utilize resources. Management of mineral exploration and exploitation, land use, and urban and rural planning was enhanced. Last year, 15.2 billion yuan from the sale of treasury bonds was used to finance key ecological projects undertaken to prevent and control pollution in the basins of the Huai River, Tai Lake and other major rivers and lakes, protect virgin forests, return farmland to forests or grassland, and prevent and control desertification. We launched special projects to address serious environmental problems that were endangering people's health.

3. Deepening economic restructuring and opening China further to the outside world. Trials of comprehensive rural reform were carried forward. Significant progress was made in introducing a shareholding system in state-owned commercial banks and in reforming rural credit cooperatives. Reform of the shareholder structure of listed companies made steady progress. Reform of the mechanism for setting the Renminbi exchange rate was implemented smoothly. Introduction of a modern corporate structure in state-owned enterprises was accelerated. A total of 21.9 billion yuan was allocated by the central government to subsidize the policy-based closure and bankruptcy of 116 state-owned enterprises. The work of relieving enterprises of their obligation to operate social programs continued. Reform in the areas of public finance, tax, investment and pricing was deepened. Reform of the postal service system was initiated. Further progress was made in the reform of the railway and civil aviation systems. Policy measures were adopted to encourage, support and guide the growth of the non-public sector of the economy. Breakthroughs were made in reforms in some major areas.

We actively addressed new issues arising in the course of opening China to the outside world. The structure of foreign trade was improved by adjusting policies concerning export rebates, tariffs and processing trade. The export rebate mechanism was improved. Steady progress was made in opening the service sector to foreign competition. Overall arrangements were made for work after the transition period following China's entry into the WTO.

4. Accelerating the development of social programs. The central government spent 116.8 billion yuan in 2005 on science and technology, education, health and culture, an increase of 18.3 percent over the previous year. In addition, 9.54 billion yuan from the sale of treasury bonds was spent on these items.

In science and technology, we improved the national innovation system and strengthened basic research and infrastructure development. Important progress was made in major R&D projects, including those to design and develop advanced integrated circuit chips, third-generation mobile communications, high-performance composite materials, and high-grade, digitally controlled machine tools. Under the leadership of the State Council, we formulated the Outline of the National Long- and Medium-Term Program for Scientific and Technological Development based on two years of in-depth research and extensive deliberation during which the views of all concerned parties were solicited.

In education, we focused on strengthening compulsory education, especially in rural areas. Over 7 billion yuan was allocated by the central and local governments to pay tuition and miscellaneous fees, provide free textbooks, and subsidize room and board for 17 million students from poor families in 592 designated poverty-stricken counties. Free textbooks were also provided to over 17 million students from poor families in the central and western regions. As a result, many students who had dropped out of school were able to continue their studies. We continued to implement 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. We built, renovated or expanded over 2,400 boarding schools in rural areas and provided distance learning equipment for 160,000 rural primary and secondary schools and learning centers over the past two years. Vocational education was further improved, and higher education continued to develop.

In health, we put great effort into improving the public health system and rural health care work. Over the past three years, the central and local governments spent 10.5 billion yuan to basically complete establishment of a disease prevention and control system that operates at the provincial, city and county levels. A total of 16.4 billion yuan was spent on setting up a medical treatment system for public health emergencies, and work is proceeding smoothly. The central government spent 3 billion yuan from the sale of treasury bonds to support the establishment of health clinics in towns and townships in the central and western regions, thus improving public health and medical treatment conditions there. Trials of a new type of rural cooperative medical care system were extended to 671 counties with a total of 177 million rural residents. We intensified efforts to prevent and treat major diseases such as AIDS and gave high priority to the prevention and control of highly pathogenic avian influenza, keeping it from spreading and infecting people. Progress was made in population work and family planning.

In culture, we launched a trial reform of the cultural system, upgraded culture-related facilities for public use, implemented the project to share cultural information, and increased cultural exchanges with other countries. Further successes were achieved in the country's athletic endeavors. Greater efforts were made to promote socialist cultural and ideological progress.

5. Striving to increase employment and improve social security work. We increased policy support and spending to expand employment and reemployment. The central government last year allocated 20.9 billion yuan to provide basic living allowances and reemployment subsidies to employees laid off from state-owned enterprises, 2.9 billion more than the year before. We did a good job providing employment for urban residents newly entering the workforce, college graduates and demobilized soldiers. A special fund was also set up in central government budget to support job training for farm laborers looking for urban employment and to assist demobilized soldiers from urban areas in finding jobs for themselves.

The social security system underwent steady improvement, and its coverage was expanded. The work of incorporating basic living allowances for workers laid off from state-owned enterprises into the unemployment benefit system was completed in 17 provinces, autonomous regions and municipalities directly under the central government. All urban residents entitled to basic living allowances are now basically receiving them. Allowances for key entitled groups were increased significantly, and 7.46 billion yuan was allocated from the central government budget for allowances for entitled groups, a 90 percent increase from the previous year. The basic framework of a social assistance system has been established in 28 provinces, autonomous regions and municipalities directly under the central government and in 2,300 counties and cities. Disaster relief and anti-poverty work was intensified. Total expenditures from the central government budget for fighting natural disasters and providing disaster relief came to 8.9 billion yuan last year, and more than 90 million people were helped. The central and local governments allocated 16.2 billion yuan for poverty alleviation, and the number of rural residents living in poverty decreased by 2.45 million.

6. Strengthening democracy and the legal system. Democracy continued to make advances at the local level, and elections for village committees were held in 21 provinces, autonomous regions and municipalities directly under the central government. The running of governments, factories and villages was made more transparent. Government decision making was made more scientific and democratic, and a system of public notices and public hearings on matters affecting the interests of the people was instituted. Much effort was put into passing government legislation. The State Council sponsored seven bills, including the revised versions of the Labor Contract Law, the Law Guaranteeing the Rights and Interests of Women, and the Individual Income Tax Law (draft), and 22 administrative regulations were drawn up and promulgated by the State Council, including the Emergency Measures for Handling Major Animal Epidemics and the Special Regulations for Preventing Coalmine Accidents. The State Council formulated and implemented the Master State Plan for Rapid Response to Public Emergencies and plans for managing specific emergencies, thus improving our ability to respond to emergencies. Oversight was strengthened through auditing and supervision. We carried out thorough preparatory work for implementing the Civil Servant Law of the People's Republic of China. The new Regulations on Petitions in the Form of Letters and Visits were implemented, improving people's access to government departments that handle such petitions and ensuring order in submitting and handling them. Steady progress was made in the reform of the judicial system. A campaign to correct irregularities and promote impartiality in law enforcement was launched to safeguard citizens' lawful rights and interests. We continued to improve all facets of public security and severely punished illegal and criminal activities in accordance with the law. The number of criminal cases dropped, and social stability was maintained.

Work related to ethnic groups, religions, overseas Chinese, and Taiwan was further improved. We continued to make progress in the modernization of national defense and the army. Significant progress was made in diplomacy.

We owe these successes to the correct overall leadership of the Central Committee with Comrade Hu Jintao as General Secretary and to the concerted efforts and hard work of government employees and the general public. On behalf of the State Council, I would now like to express our sincere thanks to the people of all ethnic groups, to the democratic parties, to all people's organizations, and to people from all walks of life. I would like to sincerely thank our compatriots from the Hong Kong and Macao special administrative regions and Taiwan, as well as overseas Chinese. I would also like to sincerely thank our friends around the world who care about and support China's modernization drive.

While acknowledging our successes, we must also clearly realize that there are still many difficulties and problems in China's economic and social activities. Many long-standing and deep-seated problems have yet to be fundamentally solved, and a number of new problems have arisen that require our attention. First, it has become difficult to further increase grain production and rural incomes. There is downward pressure on grain prices and upward pressure on the prices of agricultural supplies, making it difficult for farmers to increase their earnings and discouraging them from growing grain. Moreover, the total area of useable farmland continues to decrease, and the overall agricultural production capacity is weak. This poses a threat to the nation's food security. Second, fixed asset investment is still expanding too fast. Investment in some industries is increasing too quickly, and too many new projects have been launched. Investment is too concentrated in some areas, and there is significant pressure for a rebound in investment. Third, the adverse consequences of overheated investment in some industries are becoming apparent. The problem of excess production capacity is getting worse, causing the prices of goods to drop and inventories to increase. Corporate profits are down and losses are increasing, creating greater potential financial risks. Fourth, many problems affecting the vital interests of the people have yet to be satisfactorily solved. There is strong public concern over the difficulty and high cost of getting medical treatment and receiving an education. The people's interests are adversely affected by violations of regulations and policies in a number of areas, including land expropriation, housing demolition and resident relocation, relocation of people from reservoir areas, and corporate restructuring, as well as by environmental protection. Fifth, there are serious problems in production safety. Major coalmine and traffic accidents occur frequently, causing serious loss of life and property.

We are also aware that there are still quite a few defects and shortcomings in the work of governments at all levels. The process of transforming government functions is behind schedule, some tasks have not been adequately carried out, and efficiency is low. The problem of formalism and going through the motions is still fairly serious. Some government employees engage in fraud, some are extravagant and wasteful, and some are even corrupt.

We must heighten our sense of mission and our sense of urgency, build on our achievements, improve our work, boost our morale, work conscientiously, strive to do all government work better, and do our best to live up to people's expectations and prove ourselves worthy of the great trust the country has placed in us.

II. Major Tasks for This Year

The tasks related to reform, development and stability for 2006, the first year in the Eleventh Five-Year Plan, are huge. To do the work of the government well and get the Eleventh Five-Year Plan off to a good start, we need to adopt the following basic line of thinking: Take Deng Xiaoping Theory and the important thought of Three Represents as our guide, closely follow the guidelines set out at the Sixteenth CPC National Congress and the third through fifth plenary sessions of the Sixteenth Central Committee, fully implement a scientific outlook on development, continue to accelerate reform and opening up and stimulate independent innovation, continue to promote economic restructuring and change of the pattern of growth, always put problems affecting the vital interests of the people high on our agenda, intensify all aspects of the effort to build a socialist economy, promote development of the country politically and culturally, and create a harmonious society.

Taking all relevant factors into consideration, we have set the following major targets for economic and social development in 2006 as follows: GDP should grow by about 8 percent, and energy consumption per unit of GDP should fall by about 4 percent. The rise in consumer prices should be kept under 3 percent. Urban employment should increase by 9 million persons, and the urban registered unemployment rate should be kept under 4.6 percent. The equilibrium in the balance of payments should stay basically balanced.

We need to keep the overall situation in mind and firmly adhere to the following principles to ensure success in the work of the government this year. First is to maintain consistency in government policy and carry out fine-tuning as needed. We need to continue to properly exercise macroeconomic regulation, ensure continuity and stability in macroeconomic policies, maintain the correct orientation and strength of macroeconomic regulation, handle each case on its own merits, provide guidance tailored to the situation, and take specific measures to solve major problems in economic development. Second is to always keep the big picture in mind and pay close attention to key areas. We need to correctly balance reform, development and stability, use reform and opening up to drive all aspects of our work, and strive to solve the major problems affecting the overall situation in order to promote all aspects of economic and social development. Third is to take all factors into consideration in making overall plans and pay close attention to the well-being of the people. We need to continue to put people first, maintain the "five balances" [balancing urban and rural development, development among regions, economic and social development, development of man and nature, and domestic development and opening wider to the outside world, tr.], pay closer attention to balancing development between urban and rural areas and among regions, developing social programs, and promoting fairness and stability in society, and enable all our people to share in the fruits of reform and development. Fourth is to stay firmly rooted in the present while looking ahead to the future. We need to do a good job of this year's work, gear our work to meeting the targets set in the Eleventh Five-Year Plan, strive to make progress, refrain from taking on more than we can handle, and achieve concrete results.

We need to focus on the following aspects of our work this year.

1. Maintaining fast yet steady economic development

Looking at the current international environment and domestic conditions, we can see that there are many conditions conducive to economic development this year. But there are also a number of problems that could hold back development, as well as some uncertainties. We need to adopt sound policies to deal with these problems and uncertainties to prevent large fluctuations in the economy.

We will keep macroeconomic policies stable, mainly by continuing to follow prudent fiscal and monetary policies. Since the economy is now performing well and there is a lot of activity in non-state investment, this year we will again appropriately reduce the deficit and the amount of long-term treasury bonds for development. We plan to issue 60 billion yuan worth of long-term treasury bonds, 20 billion yuan less than last year, while increasing regular construction investment from the central government budget by 10 billion yuan. The deficit in the central government budget is projected to be 295 billion yuan, 5 billion yuan less than last year. Funds from the sale of long-term treasury bonds and budgetary investment will be mainly used to maintain adequate funding for key projects already underway and to fund an appropriate number of major new projects that impact on overall development in agriculture, forestry, water conservancy, science, education, culture, health, ecological improvement, environmental protection and development of the western region. Starting this year, China will follow standard international practices by adopting the method of outstanding balance management for its national debt. We need to administer taxes in accordance with the law, improve tax collection and management, and standardize management of non-tax revenue. We need to take all factors into consideration in making overall plans for budgetary expenditures, limit expenditures to what we can afford, ensure adequate funding for key items and economize wherever possible. We will strengthen budgetary oversight and control the rise in administrative expenses. We need to maintain appropriate growth of money supply and credit, improve the mix in loan portfolios and create new financial products. We need to increase credit support for agriculture, rural areas and farmers and for small and medium-sized businesses, employment, and students having difficulty paying educational expenses. Long- and medium-term credit should be kept at an appropriate level. We will improve the mechanisms for setting and transmitting interest rates. We will improve the system of managed floating foreign currency exchange rates and keep the Renminbi exchange rate basically stable at an appropriate and balanced level.

We will adhere to the strategy of expanding domestic consumption and focus on increasing consumption demand and strengthening the role of consumption in fueling economic development. First, we will strive to raise urban and rural incomes. We need to adjust the distribution of incomes, standardize the way income is distributed, and increase the income of people in the lower and middle income brackets. To increase rural incomes, we will continue to pursue the policy of giving more, taking less and loosening control. In particular, we need to adopt more measures to give more benefits to farmers. All local governments should make necessary adjustments to the minimum salary system and implement it strictly, and introduce a minimum hourly wage system. We need to gradually solve the problem of low wages for rural migrant workers in cities. We must establish laws and mechanisms for ensuring that wages are paid on time. We will conscientiously implement the revised Individual Income Tax Law and lower the tax burden on low- and middle-income people. This year, the government will appropriately raise basic pension benefits for retired enterprise employees, subsidies for entitled groups and subsistence allowances for urban residents. We will reform the civil servant pay system. We will establish a unified national salary system based on position and rank and a mechanism for regular pay increases and improve the system of allowances for difficult and remote border regions, all based on review and standardization of existing allowances and subsidies. In addition, we will promote reform of the income distribution system in public service institutions. Second, we will keep expected individual spending stable and encourage immediate consumption. We will address people's concerns that increasing consumption will make them unable later to meet basic living needs by accelerating efforts to improve the social security system and solve major problems in education, public health and medical care, and housing. Third, we will work hard to encourage consumption in rural areas. We will increase efforts to develop rural markets and promote the flow of goods, make full use of existing rural retail distribution networks, and support urban wholesale and retail businesses in setting up outlets in the countryside to stimulate rural consumption. Fourth, we will improve the consumption environment and consumption-related policies. We will improve housing and public transportation conditions and take active steps to further develop tourism, cultural activities, fitness centers and other services. We will effectively safeguard consumers' lawful rights and interests. We will make appropriate adjustments to the current consumption tax, standardize and develop consumer credit, promptly eliminate or revise unsuitable regulations and policies that discourage consumption, and promote more high-end consumption.

We will maintain fixed asset investment at an appropriate scale, continue to encourage the growth of some sectors while discouraging the expansion of others, improve the investment structure and prevent breakneck growth in investment. We will continue to properly control the availability of land and credit, practice the strictest possible land management system, and grant loans on the basis of proper qualifications and market access requirements. We will strictly control the number of new projects undertaken. We will strengthen weak links and key areas in economic and social development. We will continue efforts to restrict excessive real estate investment and lower overheated real estate prices in some cities. We need to adjust the types of real estate properties on the market by strictly controlling new high-end real estate projects and concentrating on building general commercial housing and low-cost housing. We will establish a sound system for renting affordable housing and a system for leasing housing. We will establish and standardize order in the real estate and construction markets, basically clear up all overdue payments related to construction projects, and promote the sound development of the real estate and construction industries.

2. Promoting the building of a new socialist countryside

Building a new socialist countryside is a major historic task set at the Fifth Plenary Session of the Sixteenth Central Committee of the Party, which will have an overall impact on building a moderately prosperous society in all respects and modernizing the country. We need to implement a policy of getting industry to support agriculture and cities to support the countryside, strengthen support for agriculture, rural areas and farmers, and continue making reforms in rural systems and innovations in rural institutions to bring about a rapid and significant change in the overall appearance of the countryside.

The first priority in developing a new socialist countryside is to develop modern agriculture and promote steady expansion of grain production and sustained increase in rural incomes. We will stabilize, improve and strengthen policies supporting agriculture. We will further increase direct subsidies to grain producers, subsidies for growing superior grain cultivars, and subsidies for agricultural machinery and tools as well as increase transfer payments to major grain-producing counties and financially strapped counties. We will continue and improve the floor price policy for key grain varieties and keep prices for agricultural supplies from rising too quickly. Central government budget expenditures for agriculture, rural areas and farmers this year will total 339.7 billion yuan, 42.2 billion yuan more than last year. We need to protect arable land, especially basic farmland, stabilize the acreage sown to grain, and expand overall grain production capacity. We will increase the country's capacity for innovation in agricultural science and technology and ability to put scientific and technological advances to practical use, and step up efforts to disseminate agricultural technology and improve agriculture-related technical services. We will accelerate reform of the veterinary medicine management system and development of the animal disease prevention and control system. We will continue to adjust the structure of agriculture by promoting development of the livestock and poultry industry, promoting the industrialization of agriculture, developing secondary and tertiary industries in rural areas, particularly for processing agricultural products, helping county economies grow, bringing about an orderly transfer of the rural workforce to nonagricultural employment in rural and urban areas, and increasing rural incomes through various channels.

In order to build a new socialist countryside, we must accelerate development of rural infrastructure. We need to resolutely work to reorient investment by shifting the government's priority in infrastructure investment to the countryside. This constitutes a major change. This mainly involves strengthening basic development of farmland, with the focus on small water conservancy facilities; improving the system of flood control, drought resistance and disaster reduction; accelerating construction of infrastructure projects such as roads, drinking water supplies, methane facilities, electric grids and communications; improving the living environment in rural areas; and accelerating development of rural public services, such as education, health and culture. The main measures we will adopt to accomplish this goal are: gradually increasing annual investment in agriculture and rural areas from the central and local government budgets and credit funds, integrating agricultural investment from all channels to improve capital performance, guiding farmers to invest capital and labor in public welfare facilities that benefit them directly, encouraging and guiding the investment of non-state funds in rural development, and gradually establish an appropriate, stable and effective investment mechanism. If we work tirelessly, we can bring about a major improvement in rural infrastructure.

In order to build a new socialist countryside, we must comprehensively carry out overall rural reform. This year, we will completely rescind the agricultural tax throughout the country, a tax that China has been collecting for 2,600 years. This is a change of epoch-making significance. The reform of rural taxes and fees has greatly benefited farmers by eliminating 33.6 billion yuan of agricultural tax, over 70 billion yuan in the form of the "three deductions" [for public reserve funds, public welfare funds and management fees, tr.] and the "five charges" [charges for rural education, family planning, militia training, rural road construction and subsidies to entitled groups, tr.], assessments for rural education and other unreasonable fees. Starting this year, the government will appropriate over 103 billion yuan annually to ensure the normal operation of town and township governments and meet the needs of rural compulsory education. This figure is comprised of more than 78 billion yuan in transfer payments from the central government budget and over 25 billion yuan from local government budgets. It must be pointed out that after the agricultural tax is completely rescinded, the task of consolidating the results of the reform of rural taxes and fees and furthering the reform will remain very difficult. The key to success is to comprehensively carry out overall rural reform, including deepening reform of government bodies in towns and townships, rural compulsory education, and county and township fiscal management systems. These reforms require adjustments in rural production relationships and directly involve changes in the rural superstructure, which makes such changes profoundly significant and difficult to achieve. However, we must unwaveringly implement them.

The building of a new socialist countryside is a long-term arduous task. We need to proceed from reality, take measures suited to local conditions, give guidance tailored to the situation and plan carefully. We need to respect the wishes of farmers, oppose formalism and coercion, and avoid the herd mentality. We need to advocate a spirit of self-reliance and hard struggle, be realistic and pragmatic, and work diligently.

3. Intensifying efforts to restructure industries, conserve resources and protect the environment

Restructuring and upgrading industries, which are our major means for improving the pattern and quality of economic growth, constitute a pressing task. First, we need to upgrade industries and improve industrial technology. We will accelerate the development of advanced manufacturing, new and high technology industries, and modern services, while continuing to improve basic industries and infrastructure such as transportation, energy and water conservancy. We will promote the application of information technology in the economy and society. The key to improving the technology used in industries lies in comprehensively improving our capacity for independent innovation. We need to promptly develop core technologies and improve systems integration in some important industries and create technologies, products and standards for which we own intellectual property rights. The main measures we will adopt are: We will strengthen the role of enterprises to make them the main source of independent innovation and build a market-oriented system for technological innovation that integrates the efforts of enterprises, universities and research institutes. We will energetically pursue a name brand strategy by encouraging development of famous brands for which we hold intellectual property rights. We will strengthen the system for protecting intellectual property rights and intensify law enforcement in this area. We will improve the mechanisms for encouraging independent innovation and adopt fiscal, tax, banking and government procurement policies that support enterprise innovation. Finally, we will improve the market climate, promote risk investment for business startups, and help small and medium-sized enterprises improve their capacity for independent innovation. Second, we need to restructure some industries that have surplus production capacity. To do this, we will use a combination of economic, legal and necessary administrative means, and take full advantage of the role of market forces. The main measures we will adopt are: We will earnestly implement all industrial policies, make the requirements for market access more rigorous, and control expansion of production capacity. We will support corporate acquisition and reorganization and joint production agreements between enterprises, and encourage competitive enterprises to grow stronger and larger to increase concentration in industries. We will, in accordance with the law, shut down enterprises that use resources destructively, contaminate the environment, or do not meet production safety standards, and close down outmoded production facilities. We will make proper and efficient use of existing production capacity by restructuring investment and expanding consumption demand. This work has wide implications and involves policy considerations, and it needs to be done in an energetic yet orderly way.

We must conserve resources. First, we need to use a combination of means, particularly pricing and taxation, to promote the rational exploitation and economical use of resources. Second, we need to work quickly to establish or improve standards for conserving energy, water, land and materials in all industries, develop key projects that save energy and materials, and promote more intensive utilization of land. We will encourage development of products that save energy and resources and construction of buildings that conserve energy and land. Third, we need to strongly promote upgrading of equipment and technology, focusing on saving energy and decreasing consumption of materials, and more quickly eliminate production processes, technologies and equipment products that waste energy, water and raw materials. Fourth, we need to work hard to develop the circular economy. A number of circular economy pilot projects will be conducted in key industries, industrial zones, and urban and rural areas. We will improve preferential tax policies for comprehensive utilization of resources and recycling of recyclable waste, and promote comprehensive utilization of waste materials and recovery and recycling of used resources. Fifth, we need to improve all facets of management, include the amount of energy and materials saved when compiling statistics on and evaluating economic and social development, and set up a system for releasing information on a regular basis. Beginning this year, the energy consumption per unit of output for all regions and major industries will be made public on an annual basis. Sixth, we need to carry out an extensive and long-term resource conservation campaign throughout the country to heighten public awareness of the need to conserve resources.

We will accelerate the development of an environment-friendly society. We will strengthen ecological protection of water sources, land, forests, grassland, oceans and other natural resources, with emphasis on preventing and treating pollution in the watersheds of the Huai, Hai, Liao and Songhua rivers, Tai, Chao and Dianchi lakes, and the Three Gorges Reservoir area, and at the sources and along the routes of the South-to-North Water Diversion Project. In addition, we will promote clean production and develop projects for treating industrial waste water. We will work hard to prevent and control air pollution nationwide and increase the proportion of sewage treated and household refuse safely disposed of in key cities. We will take comprehensive measures to control rural pollution from non-point sources and pollution from livestock and poultry farming. We will continue projects to protect the natural environment. We will promptly create a mechanism for ecological compensation. We will strengthen law enforcement and improve inspections to monitor environmental and ecological protection. We will improve the systems for monitoring and evaluating environmental protection and for determining accountability for environmental problems.

4. Continuing to promote balanced development among regions

We will carry forward the development of the western region and give special support to the development of key areas, cities and industries there. We will ensure that ongoing major projects such as the Qinghai-Tibet Railway and the third phase of the Three Gorges Project are completed and put into operation, and launch a number of major construction projects. We will consolidate and build upon progress made in returning cultivated land to forests and returning grazing land to grassland, and quickly adopt follow-up policies. We will continue ecological projects such as those for protecting virgin forests, bringing sources of dust storms under control and preventing the spread of stony deserts. We will support the development of competitive industries and bases for producing products distinctive to the area. We will speed up the development of science, technology and education. We need to intensify policy support and increase transfer payments to accelerate establishment of long-term, stable funding channels for developing the western region.

We will continue to implement the strategy of rejuvenating northeast China and other old industrial bases. We will focus on developing large grain production bases, and on promoting reform, reorganization and technological upgrading in key industries. We need to successfully transform the economies of cities whose local natural resources have been exhausted, address the problem of sinkholes in coal mining areas, turn shantytowns into new housing areas, and promptly set up mechanisms to compensate for resource depletion and to aid declining industries. We will conduct pilot projects for reforming some collectively owned factories operated by state-owned enterprises and cities. We will fully implement policy measures for opening wider to the outside world and follow a new path of rejuvenation as we accelerate the reform and opening up process.

We will energetically promote the rise of the central region. We will take full advantage of its strengths based on its geographical position, resources, industries and manpower. We will focus on developing modern agriculture, in particular developing commercial grain bases in major grain-producing areas, developing bases for producing energy and important raw materials, and developing a comprehensive modern transportation system, a modern retail distribution system and a modern market system. We will support the rejuvenation of old industrial bases and transformation of resource-dependent cities and develop bases for modern equipment manufacturing and high technology industries. We will give major cities a greater role in stimulating the development of surrounding areas.

We will encourage the eastern region to lead the country in development. It should focus on improving international competitiveness, improve and upgrade its industrial structure and enhance its capacity for independent innovation and sustainable development. It needs to pay more attention to environmental protection and the economical use of land, water, energy and other resources, ensure that development is both fast and sound, and lead the country in scientific development. The special economic zones and the Pudong New Area of Shanghai should continue to play their proper role in stimulating development. We will promote the development and opening up of the Binhai New Area of Tianjin.

We will increase support to accelerate economic and social development in old revolutionary base areas, ethnic minority regions, border areas, and poor areas. We will give more aid to ethnic groups with small populations and continue working to vitalize border areas and enrich the people living there. Developed regions should assist and stimulate the development of underdeveloped regions in various ways.

5. Implementing the strategy of reinvigorating China through science, education and human resources and promoting cultural progress

China has entered a stage in its history where it must increase its reliance on scientific and technological advances and innovation to drive social and economic development. Therefore, we must attach more strategic significance to accelerating scientific and technological development. We will fully implement the Outline of the National Program for Long- and Medium-Term Scientific and Technological Development to build an innovation-oriented country. We will work quickly to launch a number of major science and technology programs and key projects, focusing on making breakthroughs in key areas. We will continue to strengthen basic research and research in cutting-edge disciplines as well as research in technologies for public welfare applications. We will build major national science and technology infrastructure projects and laboratories for developing industrial technologies. We will strengthen the national innovation system. We will promote reform of the management system of science and technology, effectively coordinate the use of science and technology resources throughout society, and apply more scientific and technological advances in production. We will establish a mechanism to ensure stable growth of government investment in science and technology. This year the central government will allocate 71.6 billion yuan for investment in science and technology, a year-on-year increase of 19.2 percent. Local governments and enterprises also need to increase their investment in science and technology. We will further develop philosophy and the social sciences and break new ground in theoretical research.

We need to work hard to make nine-year compulsory education more widely available and consolidate past progress. Over the next two years, we will completely eliminate tuition and miscellaneous fees for all rural students receiving compulsory education. This will be done in the western region this year and extended to the central and eastern regions next year. We will also continue to provide free textbooks to students from poor families and living allowances to poor students residing on campus. Expenditures for rural compulsory education will be fully incorporated into the central and local government budgets, and a mechanism to guarantee funding for rural compulsory education through a combination of allocations from the central and local governments will be established. The main measures we will adopt are: raising the level of budgetary guarantees for common expenditures for compulsory education in both rural primary and secondary schools, setting up a mechanism to fund repair and renovation of rural primary and secondary school buildings, and improving the mechanism for guaranteeing payment of primary and secondary school teachers' salaries. To fund these measures, central government budget expenditures for compulsory education will increase by 218.2 billion yuan over the next five years. Elimination of tuition and miscellaneous fees for compulsory education in all rural areas is an important milestone in the history of the development of education in China, and it is bound to have a far-reaching impact on raising the overall quality of the people of China. We also need to solve the problems the children of low-income urban families and rural families working in cities have in receiving a nine-year compulsory education to ensure that all children have access to compulsory education. We will continue to carry out 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, and ensure that the plan's target s are met by 2007 as scheduled. Developing vocational education is an important and pressing task, for which 10 billion yuan will be appropriated from the central government budget over the next five years. We will make innovations in education and in instruction models and methods in higher education, strive to improve the quality of university teaching, and promote the development of more leading universities and key disciplines. All schools need to comprehensively promote education that ensures the well-rounded development of students. We will enhance the political integrity and professional competence of teachers and train large numbers of outstanding educators.

We will follow the strategy of reinvigorating the country through human resources and intensify development of a well-trained workforce. We will increase funding for human resource development through various sources, strengthen the role of market forces in allocating human resources, and standardize management of the human resource market.

We will intensify development of socialist culture. We need to do a good job cultivating ideals and ethics, particularly among young people. We will carry out extensive public activities to promote cultural and ethical progress. We will deepen reform of the cultural system and develop cultural undertakings and cultural industries. We will strengthen efforts to build cultural facilities, paying particular attention to cultural development at the local level in rural areas, and improve the system of culture-related services for the public. We will strongly support social programs in literature, art, radio and television, film, mass media, and publishing. We will strengthen the protection of cultural and natural heritage sites. We will vigorously support folk culture and art and increase cultural exchanges with other countries. We will improve management of the culture market and steadfastly fight against pornography and illegal publications. We will launch extensive fitness programs for the general public and raise the level of competitive sports. We will continue to do a good job preparing for the 2008 Olympic Games in Beijing and the 2010 World Exposition in Shanghai.

6. Pressing ahead with reform and opening up

The decision to implement the reform and opening up policy constitutes a major policy decision bearing on the destiny of our country. Reform is now going through a very difficult period, and we must strengthen our resolve to accelerate all reforms and continue making progress in major reforms having an overall impact this year.

We need to implement the Company Law of the People's Republic of China and accelerate introduction of the shareholding system in large state-owned enterprises. We will improve their ownership structure, corporate governance, and corporate incentive and restraint mechanisms, and speed up the formation of a number of large companies and enterprise groups that are internationally competitive. We will intensify reform of wholly state-funded enterprises and monopoly industries, ease market access, and encourage investment from various sources and diversified ownership. We will strengthen the oversight system for state assets by establishing a sound operating and budget system for state capital, a sound performance evaluation system and a sound system for assigning responsibility for major losses of state assets. We will standardize the process of changing the corporate structure and transferring ownership of state-owned enterprises to prevent loss of state assets and protect the lawful rights and interests of their employees. We will promote reform and development of collectively owned enterprises. We will conscientiously implement policy measures to encourage, support and guide the development of the non-public sector and continue working to create a legal, policy and market environment that ensures fair competition for all enterprises regardless of their type of ownership.

We will accelerate reform of the financial system. First, we will firmly press ahead with the shareholding reform of state-owned commercial banks. While keeping a controlling share in the state's hands, we will work to improve the banks' ownership structure. We will introduce advanced foreign management practices, standardize corporate governance, improve internal control and management, and promote structural innovations. Second, we will vigorously develop the capital market. We will enforce the Securities Law of the People's Republic of China and take steps to effectively strengthen the structural foundation of the securities market. We will work hard to improve the performance of listed companies, continue to do a good job in overall regulation of securities companies, and enhance market supervision in accordance with the law to create an open, just, fair and transparent market environment. We will continue to reform the shareholder structure of listed companies. We will energetically yet steadily develop the market for bonds and futures. Third, we will deepen financial reforms in rural areas. We will improve the system of rural credit cooperatives, carry out reform of the Agricultural Bank of China and the Agricultural Development Bank of China and increase the pace of innovation in banking and finance in rural areas to improve the banking system and financial services there. In addition, we will deepen the reform of the insurance industry and expand the scope of allowed activities, and promote reform of policy banks, postal savings institutions and other financial institutions. We will work to strengthen and improve financial oversight and strengthen capital requirements for banks. We will rigorously prosecute parties committing illegal and criminal acts in the financial sector in accordance with the law, guard against general financial risks, and work to maintain financial stability and security.

We will deepen reform of the fiscal, tax, investment and pricing systems. Fiscal reform will focus on improving the public finance system, transfer payment system and budget management system, and implementing reform of the classification of government revenue and expenditures. We will vigorously proceed with VAT reform and adjust the resource tax. We will study how to create a unified tax system covering all types of enterprises. Reform of the investment system will focus on implementing a system that grants independence in investment coupled with responsibility for risk, improving the system of project approval and record-keeping, releasing more investment information, improving and implementing market access rules, and improving macroeconomic regulation of investment. In pricing reform, we will focus on gradually streamlining and improving the pricing mechanism for resource products and related factors of production. In doing so, we need to take into account the interests of all parties and pay particular attention to the needs of low-income people.

We will continue working to improve and standardize market order. We will improve market legislation and accelerate development of a credit system for the general public. We will severely punish, in accordance with the law, parties who engage in production and sale of counterfeit goods, commercial fraud, smuggling and selling of smuggled goods, tax evasion and tax fraud, financial and securities crimes, and violations of intellectual property rights. We will resolutely prosecute people involved in pyramid schemes, including ones in disguised forms. We will pool our resources to launch special campaigns to promote food safety, strictly control market access for food products, and strengthen oversight and management of the entire production and distribution process to assure the people of the safety of the food supply.

We will open still wider to the outside world and make better use of domestic and international markets and resources. We need to change the pattern of growth of foreign trade, improve the mix of imports and exports, and correct the imbalance between imports and exports. We will support the export of service products and high value-added products with Chinese intellectual property rights and trademarks and continue to control the export of highly polluting products, resource products and products that consume excessive quantities of energy. We will speed up the process of upgrading the processing trade and improving the geographical distribution of the processing trade industry. Imports will be expanded by a suitable amount, particularly imports of advanced technology, key equipment and resources that China lacks. We will continue to make energetic and effective use of foreign capital and strive to improve its performance. We will further open the service sector to foreign competition. We will support qualified enterprises in going global, making overseas investments, conducting international business in conformance with general international practices, and establishing processing centers, marketing and service networks and R&D centers in other countries. We will institute a policy support and service system and improve the mechanisms for coordinating overseas investment and risk management.

Since the transitional period for China's accession to the WTO will basically end this year, we need to heighten our sense of urgency to be sure we complete all related work. We will improve the system and mechanisms for managing foreign economic activities to better facilitate trade and investment. We will make use of WTO rules to make key sectors more risk-resistant and more competitive internationally. We will make the mechanism for dealing with trade disputes more efficient and handle trade frictions properly. We will carry out negotiations on regional economic cooperation and free trade zones in a step-by-step and focused manner. We will play a constructive role in the new round of WTO talks.

7. Paying close attention to solving problems related to the vital interests of the people

We must always keep in mind our obligation to run the government for the people and do everything for their benefit. We need to promptly solve practical problems concerning public interests that the people are most concerned about and that affect them most directly. In particular, we must do a good job in work related to employment, social security, medical care and production safety.

We will continue to follow the policy of expanding employment and do everything possible to do so. We will continue to create jobs for workers laid off because of economic transformation or because of enterprise reorganization, restructuring, closure or bankruptcy. Policies to support reemployment of employees laid off from state-owned enterprises will be extended for another three years, and coverage will be gradually extended to employees laid off from collectively owned urban enterprises where local conditions permit. More support will be given to the reemployment of workers laid off from the defense industry, the logging industry and other industries experiencing difficulties. A total of 25.1 billion yuan will be allocated from the central government budget this year for reemployment work, 4.2 billion yuan more than last year. Local governments should also increase budgetary allocations for this work. We will pay close attention to helping university graduates find jobs and helping demobilized army personnel return to civilian life, and we will create more jobs for urban residents entering the job market for the first time and for rural laborers coming to cities to find jobs. We will improve vocational training and employment services. We will effectively protect the lawful rights and interests of workers.

We will speed up development of the social security system. We will ensure that all social security benefits are paid on time. We will improve the system of basic old-age insurance for urban workers. We will do a good job in the pilot project to properly set up individual retirement accounts and expand the trials to more areas. We will reform the way old-age pensions are calculated and paid, and introduce incentive and restraint mechanisms to encourage more people to participate in old-age insurance programs. We will extend coverage of social security programs to more employees of enterprises under all forms of ownership and to self-employed people and people without fixed employment in urban areas. We will strengthen collection of social security contributions, strengthen oversight and management of collected funds, and raise social security funds through a variety of channels. In addition, we will step up development of the basic medical, unemployment, workers' compensation and maternity insurance systems for urban residents and continue to improve the system of urban subsistence allowances. We will work out a plan for reforming the old-age insurance system in government bodies and institutions. We will work out social security measures suitable for rural migrant workers. We will improve the system for providing food, clothing, medical care, housing and burial expenses for childless and infirm rural residents, the system for providing assistance to families in extreme poverty and the system for providing relief to disaster victims by increasing financial support and appropriately raising the level of assistance. Governments in localities where conditions permit need to look for ways to set up a system of subsistence allowances for rural residents. All local governments need to accelerate development of community-based relief systems for urban and rural residents with special needs. We will improve the work of preventing, reducing and responding to disasters. We will intensify poverty alleviation work and increase investment init to further reduce the number of people living in poverty. Preferential treatment will be given to the families of revolutionary martyrs and military personnel. We will continue to develop public welfare and charity programs and undertake various activities to solicit public contributions and participation. We must make sure that orphaned children and elderly and disabled persons with no source of income receive more care and assistance so they may experience the warmth of our large socialist family.  

We will give a high priority to medical and health care work. We will concentrate on the following three areas to gradually resolve the lack of adequate and affordable medical services. First is to speed up the development of a rural medical and healthcare system. We will launch the Program for Establishing and Developing a Rural Health Care Service System to improve the system and network of medical and health care that spans the three levels of county, township and village. The state will spend more than 20 billion yuan over the next five years on renovating hospital buildings in towns and townships and in some counties and upgrading their equipment. We will speed up the establishment of a new type of rural cooperative medical care system by extending the scope of current trials to 40 percent of the counties in China this year and by increasing the allowances paid by the central and local governments to farmers participating in the system from 20 yuan to 40 yuan. An additional 4.2 billion yuan will be allocated from the central government budget for this program. By 2008, this new system and a rural medical assistance system should be basically in place in all rural areas. We will regularly send urban medical personnel to work in rural health facilities. Second is to strengthen urban community health services. We will accelerate the establishment of a new type of community-based system of urban medical and health care services by redirecting urban medical and health resources, increasing government spending, providing more training, improving services, and promoting innovations in mechanisms. Qualified community health care clinics will be included in the urban basic medical insurance program, and we will carry out pilot projects to gradually make community clinics the first option in medical treatment for minor medical problems, leaving hospitals free to treat only more serious problems. We will explore ways to set up an urban medical assistance system. Third is to deepen reform of the medical care and health service system and fully restore and standardize order in medical services and the production and marketing of medicines.We will improve oversight and management of prices for medicines and medical services. We will standardize the medical practices of hospitals and doctors and the way they prescribe drugs, and ensure that medical ethics and the medical code of conduct are strictly observed to improve medical services and control medical costs. We will support the development of traditional Chinese medicine and make full use of it in preventing and treating diseases. We will also intensify prevention of serious diseases that endanger the health of the general public and implement measures to prevent and control major communicable diseases such as AIDS, tuberculosis and snail fever. We will give a high priority to preventing and controlling the spread of highly pathogenic avian influenza to humans.

We will maintain consistency in the current policy on family planning, keep the birthrate low, improve the health of newborns and take effective steps to correct the gender imbalance in newborns. We will extend the system for rewarding and supporting rural families that observe the family planning policy to more areas and expand the "Fewer Children Equals Faster Prosperity Project" in the western region. We will do a good job in work related to the elderly, protect the rights and interests of women and children, and launch more programs to help disabled persons.

We will continue to improve production safety. Ensuring production safety is a huge responsibility. We must not compromise production safety for the sake of economic development. We have adopted many measures in recent years to improve production safety, and safety has improved somewhat. However, it remains a major problem. The main reasons for this are: Production safety measures have not been truly implemented; enterprises do not take full responsibility for production safety; production safety equipment and facilities are backward; overheated demand for coal is straining both production and transportation facilities; basic safety work in enterprises is weak; and some enterprises commit serious violations of laws and regulations concerning production. In addition, some local officials and government employees commit serious neglect or dereliction of duty, and some go so far as to engage in corruption.

The key to improving production safety lies in addressing both symptoms and root causes of safety problems, with the focus on the latter. First, governments at all levels must give greater priority to production safety, and leading government officials must personally take overall responsibility for safety, give enterprises greater responsibility for production safety, and ensure that the responsibility system for production safety is practiced at every level. Second, we will implement economic policies that encourage safe production. We will improve the system of incentives and restraints to encourage enterprises to take production safety more seriously. Third, we will accelerate reform and reorganization of the coal industry to promote the establishment of large coal mining bases by encouraging larger coal mining enterprise groups to take over and upgrade small and medium-sized coal mines. Fourth, we will invest more in production safety. The central government will again allocate 3 billion yuan from the sale of treasury bonds this year, primarily to support pilot projects to find scientific and technological ways to comprehensively control and utilize coalmine gases. Local governments and coal enterprises also need to invest more in this area. Fifth, we will launch an extensive campaign to solve production safety problems. We will continue to work to bring coalmine gases under control and to remedy safety problems in coal mines. In addition, we will also address safety problems related to other types of mines, dangerous chemicals, fireworks, land and water transportation, construction, and fire prevention. Sixth, we will improve enterprise management. We will improve basic safety work in enterprises and improve technical and quality standards for production safety. We will increase training of production safety technicians and training of all enterprise employees in production safety techniques. We will make sure that employees play their role in strengthening and overseeing production safety. Seventh, we will improve legislation concerning production safety. We will strictly enforce the law and exercise strict supervision. We will increase efforts to identify the parties responsible for production accidents and prosecute them. We will conduct in-depth investigations into cases of dereliction of duty and corruption related to production safety and severely punish the responsible parties. We will adopt comprehensive measures to firmly halt the frequent occurrence of major incidents.

8. Strengthening democracy and safeguarding social stability

We need to consolidate and develop the current political situation of democracy, solidarity, liveliness, stability and harmony. We will improve the democratic system, enrich the forms of democracy, expand orderly citizen participation in politics, and guarantee that the people are able to participate in democratic elections, democratic decision-making, democratic management and democratic oversight in accordance with the law. We will promote law-based government administration and strengthen and improve legislative work, focusing on legislation concerning resource conservation, environmental protection, employment, social security, response to public emergencies, promotion of social stability and maintenance of market order. We will improve the mechanisms, procedures and methods for public participation in legislative work. We will do follow-up investigations on the implementation of laws and regulations. We will continue to strengthen auditing and oversight work. Education in the law will be further expanded. We will provide effective legal services and assistance to help people who cannot afford the costs of filing a lawsuit. We will implement a variety of measures for judicial restructuring to further standardize law enforcement activities and promote greater fairness in the judiciary, safeguard judicial authority, and make law enforcement strict, fair and civilized.

We will pay close attention to social stability and make extensive and thorough going efforts to promote peace and security. We will correctly handle conflicts of interest in society in the new period and conscientiously implement all policies affecting the people's interests. We will pay particular attention to solving problems reported by the people and resolving conflicts of interest in society as they arise. We will do a good job handling people's petitions made via letters and visits. We will improve and consolidate government authority at the township level and ensure harmony in communities, villages and towns. We will improve the early warning system for disturbances to social stability and the emergency response mechanism. We will improve all facets of public security, speed up the development of a crime prevention and control system, and rigorously prosecute people who engage in violent and economic crimes, and frequently occurring crimes against property such as theft and robbery, in accordance with the law. We will strengthen efforts to safeguard national security.

It is the common wish of the people of all our ethnic groups to strengthen solidarity among ethnic groups and maintain national unity and social stability. We must fully implement the policies, laws, and regulations on ethnic minorities, conscientiously follow the State Council's regulations for implementing the Law on the Autonomy of Ethnic Minority Regions, and encourage all ethnic groups to join hands and work together for common prosperity and development. We will make great efforts to train officials and professionals in various fields from among ethnic minority groups. We will implement the Party's basic principles for work related to religious affairs and become better able to administer these affairs in accordance with the law. We will further improve our work related to overseas Chinese affairs under the new circumstances.

Fellow Deputies,

Strengthening national defense and the army is an important strategic task in China's socialist modernization drive. We must continue to take as our guide Mao Zedong's military thinking, Deng Xiaoping's thinking on improving the army in the new period, and Jiang Zemin's thinking on national defense and improving the army; take a scientific outlook on development as an important guiding principle for strengthening national defense and the army; and adhere to the fundamental principle and system of the absolute leadership of the Party over the army. In order to ensure that the army can effectively carry out its historical mission at the new stage in the new century, we need to speed up the military reform with Chinese characteristics and raise the army's overall ability to fight a defensive war fought using IT. We will pay special attention to military training to produce highly skilled military personnel. We will intensify efforts to develop and reform the military logistics system. We will improve defense-related research and development of new- and high-tech weapons and equipment. We will continue to run the army strictly in accordance with the law and raise its level of standardization. We will improve all aspects of the People's Armed Police to make it better able to enforce the law and respond to emergencies. We will improve the system and mechanisms for national defense mobilization, focusing on raising the quality of the militia and reserve forces. We will launch an extensive campaign to promote mutual support between the military and civilians. We will strengthen and develop solidarity between the army and the government and between the army and civilians.

Fellow Deputies,

We will continue to uphold the principle of "one country, two systems," under which Hong Kong people administer Hong Kong and Macao people administer Macao with a high degree of autonomy. We will strictly comply with the basic laws of the Hong Kong and Macao special administrative regions and give our full support to their chief executives and governments in administering the regions in accordance with the law. We will continue to implement the Closer Economic Partnership Arrangement the mainland has with Hong Kong and Macao and increase exchanges and cooperation between the mainland and the two of them in matters of the economy, trade, science and technology, education, culture, health and sports. We firmly believe that Hong Kong and Macao will remain prosperous and stable for a long time to come.

We adhere to the basic principles of "peaceful reunification" and "one country, two systems" and the eight-point proposal for developing cross-Straits relations and promoting China's peaceful reunification under the present circumstances. We will unswervingly uphold the one-China principle and never give up our efforts to achieve peaceful reunification. We will never change the principle of placing our hopes on the people of Taiwan. We will uncompromisingly oppose secessionist activities aimed at Taiwan independence. We will continue working with Taiwan compatriots to facilitate visits by individuals, promote economic, scientific, technological, and cultural exchanges and cooperation, and establish peaceful and stable cross-Straits relations. We will strive to resume dialogue and negotiation between the two sides under the one-China principle and promote resumption of direct links for postal, air and shipping services and trade on a comprehensive, direct and two-way basis. We will support economic development on the west shore of the Taiwan Straits in Fujian and in other areas where Taiwan investment is concentrated, protect the legitimate rights and interests of our Taiwan compatriots in accordance with the law, and serve them whole heartedly. Everyone wants cross-Straits relations to be peaceful and stable and develop to the mutual benefit of both sides. Anyone who tries to reverse this major trend will most certainly fail. It is the common wish of all Chinese people to see the ultimate realization of the great cause of national reunification, a process that no one can stop.

Fellow Deputies,

Over the last year we held high the banner of peace, development and cooperation and continued to follow an independent foreign policy of peace. We safeguarded the fundamental interests of China and its people, developed friendly ties and mutually beneficial cooperation with foreign countries, and contributed to common development and the safeguarding of world peace.

This year we will unswervingly continue to take a road of peaceful development. In international affairs, we will continue to advocate democracy and justice and promote coordination and cooperation. We will continue to safeguard security for all on the basis of harmony and mutual trust and promote common prosperity on the basis of equality and mutual benefit. China will continue to be open-minded and inclusive, promote dialogue between civilizations, and work to make the international order more just and equitable.

We will strengthen China's diplomacy in all areas on the basis of the Five Principles of Peaceful Coexistence. We will consolidate and strengthen friendly cooperation with other developing countries. We will adhere to our foreign policy of friendship and partnership with our neighbors, promote the formation of a mechanism for regional cooperation, and take cooperation in practical matters with our neighbors to a new high. We will expand common interests with developed countries, deal with differences appropriately, and promote exchange and cooperation with them. We will actively participate in and initiate multilateral diplomacy and play a constructive role in international and regional affairs. We will expand and intensify cultural exchanges with other countries to increase understanding and friendship between our peoples. We will protect the lawful rights and interests of Chinese nationals and corporations overseas. The Chinese government and people will work tirelessly with the people of all other nations for a peaceful, just and harmonious new world.

III. Explanation of the Outline of the Eleventh Five-Year Plan for National Economic and Social Development (Draft)

The Proposal of the CPC Central Committee for Formulating the Eleventh Five-Year Plan for National Economic and Social Development, adopted at the Fifth Plenary Session of the Sixteenth Central Committee, sets forth the objectives, guiding principles and main tasks for China's economic and social development for the next five years. On the basis of the Proposal, the State Council prepared the Outline of the Eleventh Five-Year Plan for National Economic and Social Development (draft), which has been submitted to this session for your examination and approval. I would now like to briefly go over several points.

1. The compilation process and major features of the Outline (draft)

The Central Committee and the State Council took the drafting of the Eleventh Five-Year Plan very seriously. The State Council began making arrangements for preparatory work for the drafting in July 2003. It organized central government departments, local governments, research institutions and experts in various fields to carry out research on major issues facing economic and social development, laying the groundwork for compiling the Outline (draft). Following the Fifth Plenary Session of the Sixteenth Central Committee, the State Council carried out in-depth research based on the Proposal of the Central Committee before compiling the Eleventh Five-Year Plan. A committee of experts from various fields was set up to carry out consultation and deliberation. Suggestions were solicited in various forms nationwide, and many suggestions were submitted by deputies to the people's congresses, members of CPPCC committees, and people from all sectors of society. Drafting the Outline was therefore a democratic, scientific policy-making process that pooled the wisdom of the Chinese people.

The Outline (draft) seeks to reflect requirements resulting from the development of the socialist market economy and implementation of the policy of reform and opening up. It is a macroscopic, strategic policy document that clearly defines the government's priorities and responsibilities. The document is original in both form and content. The content of the Outline (draft) gives specific expression to the strategic philosophy of implementing a scientific outlook on development and building a harmonious socialist society. It emphasizes the need to maintain the "five balances," strengthen weak links in economic and social development, solve the problems that concern the people and affect their vital interests, and properly balance market forces and macroeconomic regulation. The targets in the Outline (draft) are divided into two types: anticipated and obligatory. Anticipated targets are those that we expect or hope to meet, mainly by guiding the actions of market players. Obligatory targets are those that must be achieved, mainly by improving management in accordance with the law and providing services. In form, the Outline (draft) consists of a main body and a number of boxes, in which development targets and key projects are listed. The content of the main text is presented in a clear and easy-to-read way.

The Outline (draft) was compiled based on data from China's first economic census. This census, which took over two years to complete, gives the clearest picture yet of the basic state of the nation's economic and social development, and shows the true GDP and the true proportions of the economy accounted for by primary, secondary and tertiary industries, thus more closely and accurately reflecting China's national conditions and strength. Because it is based on the results of the first economic census, the Eleventh Five-Year Plan better reflects China's conditions and is more scientific.

2. Major economic and social developments during the Tenth Five-Year Plan period

The past five years were an unusual period of development in China, one in which we built on our past achievements and kept pace with the times. We avoided any serious impact from the Asian financial crisis, prevailed over the SARS outbreak, and overcame major natural disasters. We lost no opportunity to further reform and opening up, strengthened the basic role of market forces in allocating resources, improved macroeconomic regulation, and maintained fast yet steady economic development. The pace of China's progress in industrialization, urbanization, market development and internationalization increased significantly; overall production capacity, overall national strength and people's living standards all reached new highs; and the appearance of both urban and rural areas underwent great changes.

China's economic strength grew significantly over the last five years. GDP was 57.3 percent higher in 2005 than in 2000, an average annual increase of 9.5 percent. Government revenue rose by 136 percent over the same period, up an average of 364.7 billion yuan per year. Agricultural production, particularly grain production, took a significant turn for the better. The output of major manufactured products grew substantially. High-tech industries expanded rapidly. Tremendous achievements were made in strengthening basic industries and infrastructure development. Construction of many major projects was completed, and many others were launched in such fields as water conservancy, energy, transportation and communications. IT application in the economy and society expanded rapidly.

Great successes were achieved in reform and opening up over the past five years. Major progress was made in rural reforms, in reform of state-owned enterprises, and in reform of the financial, fiscal, tax and investment systems as well as in developing a market economic system and a social security system. China's accession to the WTO began a new stage in opening up. The total import and export volume tripled over the last five years, and the amount of foreign direct investment actually used came to 274.08 billion dollars. A number of competitive enterprises went global.

People's living standards improved markedly over the last five years. Urban per capita disposable income rose by 58.3 percent and rural per capita net income grew by 29.2 percent, both in real terms. About 42 million new jobs were created in urban areas. Consumer spending on housing, communications, cars and services grew significantly. Rapid progress was made in science and technology, education, culture, health, sports, and other social programs.

Further progress was made in socialist political, cultural, and social development over the past five years.

These splendid achievements have greatly increased the confidence of all our ethnic groups to forge ahead on the path of socialism with Chinese characteristics.

At the same time, we also encountered many difficulties and problems in economic and social development during the Tenth Five-Year Plan period. The main problems were an unbalanced economic structure, weak capacity for independent innovation, slow change in the pattern of economic growth, excessive consumption of energy and resources, worsening environmental pollution, serious unemployment, imbalance between investment and consumption, widening gaps in development between urban and rural areas and between regions, growing disparities between certain income groups, and inadequate development of social programs. We need to work hard to solve all these problems.

3. Guiding principles and major targets for economic and social development in the Eleventh Five-Year Plan period

The Eleventh Five-Year Plan period will be a crucial time in building a moderately prosperous society in all respects. A comprehensive analysis of all factors shows that on the whole the international environment will be conducive to China's development in the coming five years, but that there are quite a few unstable factors and uncertainties. Domestically, there are many favorable conditions as well as a number of restraining factors and difficulties. We should seize opportunities, exploit favorable conditions while avoiding dangers, remain vigilant against adversity, properly handle risks and challenges, and press ahead with reform and opening up and the modernization drive.

The Outline (draft) fully reflects a scientific outlook on development and embodies the important principles laid out in the Proposal of the Central Committee. These principles are: We must sustain steady, rapid economic development, speed up change of the pattern of economic growth, improve China's capacity for independent innovation, balance development between urban and rural areas and among regions, intensify efforts to build a harmonious society, deepen reforms and open wider to the outside world. To put these principles into practice, we need to change our way of thinking about development, create a new pattern of growth, improve the quality of development, and make economic and social development more people-oriented, comprehensive, balanced, and sustainable.

Major targets for economic and social development in the Eleventh Five-Year Plan period listed in the Outline (draft) were set on the basis of the guidelines and principles set out in the Proposal of the Central Committee. These targets are designed to meet the goal of building a moderately prosperous society in all respects, and they reflect conditions of the current stage of economic and social development as well as objective requirements. Now, I would like to briefly speak about just two of these targets.

First is the economic growth rate. GDP growth for the next five years is set at an annual average of 7.5 percent in the Outline (draft). This figure is based on necessity and feasibility and was determined taking all factors into account. According to recently published data from the first national economic census and the actual results of economic growth in 2005, the GDP growth rate during the Tenth Five-Year Plan period was higher than originally projected. If the average annual growth rate is maintained at 7.5 percent during the Eleventh Five-Year Plan period, the goal of doubling the 2000 per capita GDP by 2010 set in the Central Committee's Proposal will be surpassed. This is an ambitious target, but we can attain it with hard work. It should also be pointed out that this target is based on successfully improving economic structure and efficiency and reducing energy consumption. In actual implementation, each local government should balance the growth rate with structural and performance improvement, rather than single-mindedly competing with other areas for the fastest economic growth. Both historical and recent experiences show that it is crucial to maintain fast yet steady economic development.

Second is energy conservation and environmental protection. In the Outline (draft), the target for reducing energy consumption per unit of GDP is set at about 20 percent and the target for cutting the total discharge of major pollutants is set at 10 percent. These targets are designed to address the acute problem of mounting pressure on resources and the environment. They reflect the need to build a resource-conserving and environment-friendly society and are necessitated by current conditions and long-term interests. They therefore provide a clear guide for policy making. Though achieving them will be quite difficult, we have the confidence and determination to succeed.

4. Strategic priorities and major tasks during the Eleventh Five-Year Plan period

The Outline (draft) lays out the overall arrangements for economic and social development and for reform and opening up in the Eleventh Five-Year Plan period and sets out clear tasks and policy measures.

First, we must build a new socialist countryside. Among all the strategic tasks before us, the Outline (draft) gives top priority to solving the problems facing agriculture, rural areas and farmers. There is a heavy stress in the Outline (draft) on the need to continue balancing economic and social development in urban and rural areas and to make steady progress in building a new socialist countryside by developing production, improving living standards, fostering more civil behavior, improving the overall cleanliness of villages, and exercising democratic management. We need to increase overall agricultural capacity, promote agricultural restructuring, intensify development of rural infrastructure, and increase farmers' incomes. We will focus on implementing key projects to establish large production bases for grain, cotton and edible oil, industrialize production of superior quality grain varieties, build water conservancy facilities and safe drinking water supplies, build roads and methane production facilities, and develop education, culture and health in rural areas. We must also comprehensively promote overall rural reform and basically complete reform of town and township government bodies, rural compulsory education, and fiscal management in counties and townships. We need to create a new type of farmer who has a good basic education and understands both agricultural techniques and business operations. All localities and government departments must substantially change their thinking and priorities in their economic work. More development funds need to be directed toward solving the problems of agriculture, rural areas and farmers, and public services need to be made more widely available in rural areas. All of society should energetically support rural development.

Second, we must accelerate economic restructuring and change of the pattern of economic growth. Many problems impeding China's economic development arise from an unbalanced economic structure and an extensive pattern of economic growth. We must pursue development by taking a new road toward industrialization to improve the industrial structure, conserve resources and protect the environment. The Outline (draft) calls for improving and upgrading the industrial structure to make large industries stronger. This is an important task directed at the fact that although China's industries are already large, they have poor overall performance and competitiveness. The Outline (draft) sets forth the major tasks and arrangements for promoting IT application, developing high-tech industries, revitalizing the equipment-manufacturing industry, and developing the energy and raw material industries. It also contains plans for a number of major construction projects. The Outline (draft) emphasizes the importance of speeding up the development of the service sector, especially in the fields of information, finance, insurance, distribution, tourism and community services, to increase its level and its importance in the economy.

Building a resource-conserving and environment-friendly society is given a high priority in the Outline (draft). It specifies clear tasks and measures and lists a number of key energy-saving projects, demonstration projects for developing a circular economy, and key projects to protect the ecology and improve the environment. Conscientiously fulfilling these tasks and measures will significantly increase the efficiency of resource consumption and basically halt the ecological and environmental deterioration. We must work ceaselessly if we are to create clean and pleasant living and working conditions for the people and leave our future generations with blue skies, green land, clear water and verdant mountains.

Third, we must promote balanced development among regions. The Outline (draft) defines the key tasks for the development of different regions. It calls for improving the market mechanism, the mechanism for promoting cooperation, the mechanism for mutual assistance and the support mechanism to ensure balance and interaction among different regions. The Outline (draft) groups state-owned land into four types of development priority zones -- optimal development zones, key development zones, restricted development zones and non-development zones -- based on resources, the carrying capacity of the environment, and development potential. Different policies will be adopted for different zones. In addition, the document emphasizes the need to actively and steadily promote urbanization to take full advantage of the leading role of groups of cities in driving development.

Fourth, we must strive to increase our capacity for independent innovation. This features strongly in the Outline (draft). We need to follow a policy of making independent innovations and "leapfrog" advances in key areas of science and technology and supporting and guiding future development. We need to more quickly turn China into an innovation-oriented country by comprehensively enhancing our capability to make original innovations, integrate innovations and assimilate advanced foreign technologies and further refine them. The Outline (draft) calls for launching a number of major scientific and technological projects in strategic industries such as information technology and biotechnology, and projects to address important, pressing problems in energy, resources, the environment and the health of the people, as well as technologies with both military and civilian applications. Successfully implementing these projects is of major and immediate significance and will have far-reaching importance for integrating our limited scientific and technological resources, speeding up the solution of crucial scientific and technological problems with a bearing on China's overall situation and long-term development, and raising the overall technological level in those areas. Accelerating development of education in science and technology and training professionals are essential in order to improve our capacity for independent innovation. The Outline (draft) also contains a master plan for this task.

Fifth, we must deepen reforms and open further to the outside world. None of the achievements made in China's economic and social development during the past 20 some years would have been possible if we had not resolutely carried out the reform and opening up policy. In order to complete the tasks for the present phase of development, we must unwaveringly and comprehensively deepen reforms and open still wider to the outside world. The Outline (draft) contains the requirement to speed up improvement of the socialist market economic system, and establish systems and mechanisms conducive to changing the pattern of economic growth and promoting comprehensive, balanced and sustainable development. We need to improve overall guidance and coordination for reforms and continue to promote reform of the political and cultural systems and the system of social management while carrying out economic restructuring. Reform, development and stability must be properly balanced. In line with the requirement to balance domestic development and opening to the outside world, we will follow a win-win strategy in opening the country and promote reform and development by opening wider to the outside world. In opening wider to the outside world, we must pay particular attention to safeguarding China's economic security.

Sixth, we must work hard to build a harmonious society. This is an important objective of social and economic development and guarantee for it. The Outline (draft) calls for doing a good job in population work; creating more jobs; improving the social security system, people's living standards and health and public safety; building socialist democracy; promoting cultural progress; and improving the system of social management. By working hard over the next five years, we can certainly make China a more harmonious country and enable the people to live even better lives!

Fellow Deputies,

Fulfilling all the tasks for this year and the entire period of the Eleventh Five-Year Plan places increased demands on governments at all levels. This means we must greatly intensify internal reform and self-improvement efforts.

We will accelerate reform of the administrative system and further transform government functions. We will continue to separate government functions from enterprise management, reduce the number of matters requiring administrative examination and approval, and standardize procedures for doing so. We will resolutely transfer responsibility for matters the government should not manage to the markets, enterprises, civil organizations and intermediary organizations. We will change the way the government manages the economy and improve its social management and public service functions. We will make government more open and improve the system for releasing information. We will establish a sound administrative accountability system, improve the government's ability to perform its duties and strengthen public trust.

We will work hard to build a clean government and combat corruption. We will conscientiously carry out all tasks and measures for punishing and preventing corruption. We will launch a campaign this year to combat bribery in business, focusing on unhealthy practices in construction, land transfers, property transactions, purchase and sale of drugs, and government procurement, in order to resolutely put a stop to irregular transactions, and we will investigate and prosecute cases of bribery in business in accordance with the law. We will continue to remedy improper practices that harm public interests and strive to resolve such outstanding problems as arbitrary educational charges and excessively high medical costs.

We must implement the Civil Servant Law and improve the training, supervision and oversight of civil servants. We will run the government strictly and mete out reward or punishment on clear grounds. Government employees at all levels, especially leading officials, must be devoted, diligent and responsible and serve the people wholeheartedly. They need to keep the overall picture in mind, be well disciplined, carry out administrative decrees promptly, and implement all laws, regulations, principles and policies to the letter. They need to work hard, be thrifty, and oppose waste and extravagance. They also need to be realistic and pragmatic in their approach to work, refrain from making empty promises, triumph over bureaucracy, formalism, deception and exaggeration, and fully carry out all tasks and assignments.

Fellow Deputies,

China is now standing at a new historical starting point as we march toward the goal of building a moderately prosperous society in all respects. We must unite even closer around the Central Committee with Comrade Hu Jintao as General Secretary, hold high the great banner of Deng Xiaoping Theory and the important thought of Three Represents, pool the wisdom and strength of our 1.3 billion people, work diligently and confidently to achieve success, strive to make the great Eleventh Five-Year Plan into a bright reality, and write a new chapter in the history of our socialist modernization drive. No difficulties or obstacles can impede our progress. We must achieve our goals! And we definitely can achieve them!