The nation's top auditor yesterday accused some development zones which are host to many foreign-funded companies of offering unwarranted preferential policies and causing losses of billions of yuan in taxes.

NAO auditor-general Li Jinhua delivers a report to the Standing Committee of the National People's Congress in Beijing on June 28, 2005. [Xinhua]

The audit authorities investigated 87 development zones in six municipalities and provinces, including Shanghai, Jiangsu and Zhejiang, and uncovered tax losses of 6.647 billion yuan (US$830 million).

Li Jinhua, known as the "iron-handed" auditor general, revealed this yesterday when reporting the audit results of the implementation of last year's central budget to the Standing Committee of the National People's Congress (NPC) in Beijing.

Development zones have been set up since 1984 to attract foreign investment by providing tax breaks; and many local governments have been competing with each other with preferential policies to attract foreign capital.

A probe from 2003 to June 2005 found that local governments either expanded the scope of the zones without authorization or allowed companies outside the zone to enjoy preferential policies.

They also allotted land to investors at unreasonably low prices, resulting in the loss of 5.565 billion yuan (US$695 million) in government revenues, said Li.

Irregularities were also found in central government departments. The National Audit Office examined the budgets of 48 ministerial-level departments and 274 units affiliated with the departments, and found 5.51 billion yuan (US$688 million) had been misused.

For example, nine departments secured 152 million yuan (US$19 million) from central authorities by reporting non-existent workers or phantom projects, said Li, without naming names. The money was paid as subsidies to staff.

Twelve illegal cases involving 25 people were uncovered; and judicial departments will probe the matter, said Li.

Yet, he said, the situation is improving as central government departments have become more adept at handling budgets.

An audit of 38 central government departments in 2004 found that more than 9.06 billion yuan (US$110 million) was misused.

Li said that more reform measures are needed to better implement budget allocations and singled out the Ministry of Finance and the National Development and Reform Commission for loopholes in budget making.

Li's office also audited some special projects, such as the environmental protection fund for the Qinghai-Tibet Railway, the renovation of dilapidated school buildings and the co-operative medical scheme for farmers.

He said that the office is quite satisfied with the use of funds for environmental protection along the Qinghai-Tibet Railway, which starts trial operation on Saturday.

The chief auditor also said that 95 per cent of problems found during the "auditing storm" last year had been addressed.

A total of 213 people had been penalized, and 76 arrested, prosecuted or sentenced for stealing or misappropriating public funds.

Also yesterday, Jin Renqing, minister of finance, reported the central final accounts of revenue and expenditure to the NPC Standing Committee the deficit reached 299.95 billion yuan (US$37.5 billion) last year.

(China Daily 06/28/2006 page1)