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Third, we will strongly support deepening of the reform of SOEs and the financial system. We will continue supporting the policy-mandated closing and bankruptcy of SOEs, make proper arrangements for the employees of these closed and bankrupt enterprises, and promote economic restructuring. We will accelerate the trial reform of collectively owned factories operated by SOEs in northeast China. We will support the development of small and medium-sized enterprises. We will energetically pursue reform of policy banks, the Agricultural Bank of China and the China Export & Credit Insurance Corporation and prepare financial asset management companies to compete in the market.

Fourth, we will launch a trial budget system for the management of state capital. Compiling a budget for the management of state capital will help to strengthen the government's ability to exercise macroeconomic regulation, reduce structural obstacles hindering the development of SOEs, promote strategic adjustment in the distribution and structure of the state sector of the economy, pay necessary reform costs and standardize the distribution relationship between the state and SOEs. Some enterprises directly managed by the central government and tobacco enterprises will be selected to participate in a trial compilation of budgets. Local governments should also actively work to launch such trials and ensure that they produce the anticipated results.

8. We will increase transfer payments to improve the ability of local governments to provide basic public services. Continuing to carry out fiscal and tax policies designed to promote the large-scale development of the western region, revitalize old industrial bases such as northeast China and promote the revival of the central region, supporting the role of the eastern region in leading development, and constantly increasing fiscal support will not only improve the ability of the government to provide public services but also speed up economic restructuring.

First, we will increase regular transfer payments. Regular transfer payments from the central budget to local governments in 2007, mainly going to the central and western regions, will reach 192.4 billion yuan, and regular transfer payments to ethnic minority areas will reach 21 billion yuan, an increase of 39.7 billion yuan and 5.4 billion yuan, respectively, over the figures for 2006.

Second, we will both develop and expand on the results of efforts to ease the financial problems of counties and townships. A total of 33.5 billion yuan is allocated in the central budget for 2007 in incentive and subsidy funds, an increase of 10 billion yuan over the figure for 2006. We will improve the policy of "three rewards and one subsidy," as well as inspect and evaluate the work of all local governments to ensure that policies are being implemented and that funds are being used properly. We will be working hard to improve the financial management system at the provincial level and below and carrying out the reform to put county public finance directly under the management of provincial governments and township public finance under the management of county governments. Third, we will diligently implement the policy of guaranteeing operating expenses of the judicial system. A total of 6.49 billion yuan, an increase of 560 million yuan over the amount for 2006, has been allocated in the central budget in assistance for public security and procuratorial organs and people's courts in financially strapped areas. These organs and courts will improve their management structure and set up a reward mechanism. After reforming the methods for handling expenses for lawsuits we will promptly study the problem of how to ensure adequate operating expenses for courts. Local governments should also ensure that operating expenses for the judicial system are met and should incorporate guarantees for all expenses required for the functioning of the local judicial system into their budgets as soon as possible. A total of 59.483 billion yuan is allocated in the central budget for public safety in 2007, an increase of 13.125 billion yuan or 28.3% more than the 2006 allocation.

In addition, we have also allocated 347.232 billion yuan for national defense, an increase of 52.498 billion yuan or 17.8% over the amount for 2006. This increase will cover the cost of improving the army's ability to fight a defensive war under hi-tech conditions and respond to emergencies, safeguarding the country's sovereignty and territorial integrity, and appropriately increasing benefits for military personnel. A total of 23.066 billion yuan has been allocated for international exchanges and cooperation, an increase of 6.271 billion yuan or 37.3% over 2006.A total of 216.053 billion yuan has been allocated to cover expenses in providing regular public services to improve the performance of the central government and pay interest on treasury bonds, an increase of 6.795 billion yuan or 3.2% over the amount for 2006. Allocations will also be made from the central budget to meet other key expenses necessary to ensure the overall interests of reform, development and stability.

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