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Last Updated:  Thursday, 6 March, 2003, 11:21 GMT
Record Chinese budget deficit
Xiang Huaicheng
Mr Xiang promised to crack down on tax evasion
China has announced its 2003 budget, which will include a record deficit for the third year in a row.

In his annual address to China's National People's Congress (NPC), Finance Minister Xiang Huaicheng said government spending would exceed revenues by an estimated $38bn.

The NPC meeting, which opened on Wednesday in Beijing's Great Hall of the People, is expected to approve sweeping leadership changes, with Vice-President Hu Jintao expected to take over the country's presidency in place of Jiang Zemin.

Mr Xiang said further spending was needed, despite an increasing deficit, to finance the country's ongoing rural development, agricultural restructuring and social security projects.

But he assured the congress delegates that "both the deficit and the total amount of debts for 2003 will remain bearable".

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Since the 1990s, the government has been pursuing a policy of spending to promote growth.

In the past five years, spending on social welfare has increased nine-fold and spending on agriculture and education has doubled, Mr Xiang reported.

A BBC correspondent in Beijing, Rupert Wingfield-Hayes, says China's budget problems are not helped by the government's stubborn failure to significantly increase its revenues from taxation.

Xiang Huaicheng vowed to change this situation, and said that cracking down on tax evasion would be a major focus for the coming year.

But Mr Xiang has mentioned such measures many times before, our correspondent says - and still China's budget deficit continues to grow.

Bureaucratic shake-up

Also during Thursday's Congress meeting, China's leadership announced several important bureaucratic changes, including the merger of two key ministries and the creation of several new regulatory bodies.

The Ministry of Foreign Trade and Economic Cooperation (Moftec) and the State Economic and Trade Commission will merge to form the Ministry of Commerce, in order to conform with World Trade Organisation requirements.

Secretary General of the State Council Wang Zhongyu, who unveiled the reforms, said the changes would aid the development of both foreign and domestic trade.

Mr Wang also announced that a Banking Regulatory Commission would be set up to regulate China's banking industry, a job previously carried out by the central People's Bank of China.

A new State Food and Drug Administration will oversee safety supervision and the administration of food, drugs, cosmetics and health supplements.

Another new agency, the State Assets Management Commission, will be responsible for managing the assets of state-owned enterprises.

Defence spending

Part of the budget increase includes a 10% rise in defence spending, in response to "changes in the international situation" and to "safeguard national security".

It is a significant increase of about $9bn, but much lower than in 2001 or in 2002 when China set off alarm bells around the region by increasing military spending by nearly 20% each year.

Mr Xiang said the rise was needed to "raise our army's hi-tech defence capabilities and combat effectiveness."

On Wednesday, Prime Minister Zhu Rongji also called for military spending.

"We must implement a military strategy of active defence in the new era and get better prepared for military struggle," Mr Zhu told the opening session of the congress.

Mr Zhu - known for his plain-speaking - also used his speech to warn delegates about rising rural poverty.

He said that while the country's market reforms must continue, a growing wealth gap between the prosperous cities and the countryside could derail China's ongoing economic transformation.

The BBC's Mae Loon
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