V. Deepening Reforms and Opening Further to the Outside World

We will unswervingly promote reform and opening up and strive for breakthroughs in key areas and crucial links.

We will deepen the reform of SOEs.

First, we need to encourage greater investment of state capital in key industries and areas that are important to national security and comprise the lifeblood of the economy in accordance with the principle of increasing state capital input to some sectors and withdrawing it from others to ensure an appropriate flow of state capital. We will continue restructuring and reorganizing enterprises and support enterprises with the right conditions in their efforts to grow stronger and larger.

Second, we need to promote the reform to introduce the shareholding system in large SOEs, improve their corporate governance and mechanisms for controlling investment risk and for internal oversight and management, and develop a mechanism for personnel hiring and placement and for incentives and restraints that meet the requirements of a modern corporate structure.

Third, we need to improve the oversight system for state-owned assets. We will put in place a budget system for the management of state capital and standardize the way profits are distributed between the state and enterprises. We will carry out a pilot project to compile budgets for the management of state capital this year. We will standardize procedures for transforming SOEs into stock companies and for transferring ownership of state-owned assets to prevent their erosion and protect the lawful rights and interests of enterprise employees.

Fourth, we need to work quickly to solve longstanding problems in SOEs. We will continue to close down or force into bankruptcy depleted mines and enterprises that have long operated in the red with debts surpassing their assets, and actively yet prudently proceed with work of policy-mandated bankruptcy of enterprises. We will further separate core businesses from secondary businesses in enterprises, converting the latter into independent companies, and relieve enterprises of their obligation to operate social programs.

We need to speed up the reform of monopoly industries. We will further relax controls over market entry, introduce a competitive mechanism and diversify the investors in and ownership of monopoly industries. We will deepen reform of the electricity, postal service, telecommunications and railway industries and steadily proceed with the reform of public utilities such as water, gas and heat.

We will encourage, support and guide the development of individual-proprietorship businesses, private companies and other components of the non-public sector of the economy. We will conscientiously implement all policies and measures adopted by the CPC Central Committee and the State Council. We will encourage the non-public sector to participate in the reform of SOEs and to invest in public utilities, infrastructure, financial services and social programs. We will improve policies concerning banking, taxation and technological innovation to improve services for non-public enterprises. We must protect their lawful rights and interests in accordance with the law and strengthen guidance and supervision of them to ensure they operate in accordance with the law.

We will proceed with the reform of the fiscal and tax systems. The timing and conditions are now ripe for unifying the enterprise income tax rates for domestic and overseas-funded enterprises in order to level the playing field. This reform required the formulation of a new law on corporate income tax -- the Law on Corporate Income Tax of the People's Republic of China. The draft of the law will be submitted to you for your deliberation and approval. We will accelerate improvement of the public finance system, improve the system for transfer payments, reform the budget management system, formulate plans and measures to comprehensively implement VAT reforms, and establish a standardized non-tax government revenue system.

We will accelerate reform of the financial system.

First, we need to deepen the reform of state-owned banks. We will consolidate progress in the reform to change state-owned commercial banks into stock companies and continue the reform. We will promote the reform to introduce a shareholding system in the Agricultural Bank of China. We will further reform policy banks, with the focus on the reform of the China Development Bank.

Second, we need to speed up reform of the rural banking system. We will set up a system of rural financial organizations with a proper division of work, diversified investment and a full range of functions that will provide efficient services. We will make full use of the major role of the Agriculture Bank of China and the Agricultural Development Bank of China as the backbone of rural banking, continue to deepen reform of rural credit cooperatives and strengthen the role of the China Postal Savings Bank in serving agriculture, rural areas and farmers. We will appropriately adjust and relax the controls for establishing rural financial institutions with banking functions and encourage capital from various sources to invest in rural financial institutions. We will explore ways to develop new types of financial organizations suitable for rural areas and intensify efforts to make innovations in financial products and services available in rural areas to eliminate the difficulties that farmers encounter in obtaining loans.

Third, we need to vigorously develop the capital markets. We will promote the development of a multi-level system for capital markets and increase the amount and proportion of direct financing. We will steadily develop the stock market, accelerate development of the bond market and actively yet prudently develop the futures market. We will further strengthen basic market systems, proceed with reforms of the system for issuing stocks and bonds to make it more responsive to market conditions, effectively raise the quality of listed companies and strengthen market oversight.

Fourth, we need to deepen the reform of the insurance sector, expand insurance coverage and improve the services of insurance companies and their ability to handle risks.

Fifth, we need to open the financial sector to foreign competition and increase the degree of openness.

Sixth, we need to strengthen and improve financial oversight, improve the mechanism for coordinating oversight and effectively guard against and defuse financial risks in order to maintain China's financial stability and security.

We will promote growth of foreign trade. Promoting economic development and increasing employment through the growth of foreign trade is a principle we must follow for a long time to come. We must optimize the mix of imports and exports, change the pattern of China's foreign trade growth and strive to reduce our excessively large trade surplus. We will support the export of high value-added products and products with Chinese trademarks, expand the export of service products and agricultural products, limit the export of products whose manufacture is highly energy consuming or highly polluting, and promote the upgrading of the processing trade. We will increase imports of energy, raw materials, advanced technology and equipment, and key spare parts and accessories. We will strengthen management, inspection and quarantine work at foreign trade ports.

We will make good use of foreign capital. We will pay close attention to improving the overall quality of foreign investment coming into the country, optimize the mix of funds, and work to bring in more advanced technology, managerial expertise and high-caliber personnel. We need to encourage multinational companies to move their high-end manufacturing facilities and R&D centers to China and guide foreign investors to invest in the central and western regions, northeast China and other old industrial bases, and in areas identified in our industrial policy. We will actively seek to contract work being outsourced by the service industries in other countries and improve the development of China's service industries. We need to improve guidance and standardization for overseas businesses in mergers and acquisitions involving Chinese firms. We will improve the investment environment. We will standardize the way enterprises attract foreign capital and correct the problem of some localities granting preferential policies to potential overseas investors in disguised forms and assigning targets for attracting overseas investment to each level of government in violation of laws and regulations.

We will guide and standardize the overseas investment and international cooperation of Chinese enterprises. We will improve fiscal, tax, credit, foreign exchange and insurance policies and measures to encourage strong, reputable and competitive Chinese enterprises with different types of ownership to go global. We need to strengthen guidance over and coordination among enterprises to avoid haphazard investment and cutthroat competition overseas. We will continue to conclude more contracts for overseas projects and labor services. We will effectively manage overseas economic and trade cooperation zones. We will promote the Doha round of trade talks under the WTO, actively participate in formulation of multilateral trade rules, and steadily promote the development of bilateral and regional free trade zones.

1

2

3

4

5

6