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189 22 Letter to Jiang Zemin, Li Peng, and the Standing Committee of the Politburo on Implementation of the Tax-Streaming System1 September 18, 1993 Zemin, Li Peng, and members of the Standing Committee: As entrusted by you, Li Tieying and I brought a group of over 60 people from 14 units of the State Council to visit Hainan and Guangdong from September 9 to 16. There we briefed the leading members of those two provinces on the overall concepts of the reforms of the fiscal, financial, foreign trade, and stateowned asset management systems. Through detailed reconciliations of accounts and through calculations, we also conducted a focused study of the possible impact of the fiscal and tax reforms on these two provinces. At the same time, we learned about how these two provinces are implementing Party Central Committee Document No. 6,2 looked into their problems with credit quotas and funding, and agreed upon ways to address them. I herewith report on the relevant facts and opinions. 1. Regarding the Effect That Implementation of Tax Streaming Will Have on the Finances of These Two Provinces After tax streaming is implemented, the central government will centralize more of the fiscal revenues of the two provinces than it did under the fiscal “package 1. Upon returning to Beijing from his visits to Hainan and Guangdong to examine problems in implementing the tax streaming system, Zhu Rongji wrote to Jiang Zemin, Li Peng, and the standing committee of the Politburo. He reported on his discussions with the leaders of those two provinces and reflected Guangdong’s hopes for special consideration by the Party Central Committee in two areas: the first was the hope to use 1993 performance figures for the base number, as Guangdong’s economy grew quite significantly in 1993; the second was to have the central government refund those streamed taxes that Guangdong had waived or reduced for enterprises under the “package deal” system for the original duration of the “package deal.” In order to reduce resistance to the introduction of the new system and to smoothly implement tax streaming, Zhu suggested making concessions on these two points and proposed a workable formula for resolving the matter. 2.This refers to the“Opinion of the Party Central Committee and State Council on the Current Economic Situation and on Strengthening Macroeconomic Controls,”which was issued on June 24, 1993. 190 Letter to Jiang Zemin, Li Peng, and the Standing Committee of the Politburo deal” system, but the centralized portion will not be a large proportion of the finances of either province. The fiscal “package deal” in Hainan was originally supposed to last until 1995. Under this system, it is estimated that in 1994 and 1995 Hainan will collect RMB 6.5 billion in fiscal revenues. After tax streaming is implemented, the centralized amount from Hainan will total RMB 300 million to 500 million over two years, which is roughly 5–8% of local fiscal revenues during that period. Guangdong's fiscal “package deal” was originally supposed to last until 2000. In 1992 Guangdong's retained fiscal revenues totaled RMB 22.3 billion. After deducting the amount turned over to central fiscal authorities, local fiscal revenues came to RMB 20 billion. After tax streaming is implemented, it is estimated that from 1994 to 2000 the central government will take a cumulative RMB 24 billion more from Guangdong than under the "package deal" system, an amount roughly equal to 5% of local fiscal revenues during that period. Under the old system, the amount Guangdong handed over to the central government in 1992 was 10.3% of its revenues. Under the new system it is estimated that the centralized portion will amount to roughly 9.2% of Guangdong's revenues by the year 2000. Therefore Guangdong's burden as a percentage of revenues will not be greater than it was in 1992. 2. Regarding the Positions and Requests of the Leaders of the Two Provinces with Regard to Tax Streaming The leaders of Hainan Province indicated that they will resolutely support the overall fiscal and financial reform programs of the Party Central Committee and the State Council. They will also use them to come to a common understanding with cadres at all levels and to further study measures for implementation. Both sides have reached a consensus on the effect that tax streaming may have on Hainan’s finances. Hainan Province has indicated that because its infrastructure is poor and local finances are weak, it hopes...

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