consumption increases. Measures adopted in the past several years to save energy and resources and protect the ecological environment have yielded results. China's energy consumption per unit of GDP in the first half of this year dropped 2.78 percent from the same period last year.

Point V: Promote balanced development among regions and improve the pattern of land development.

Quote: In detail, in compliance with the laws governing the market economy, we will work beyond administrative divisions to form a number of close-knit economic rims and belts that will provide a strong impetus to the development of other areas. Taking a path of urbanization with Chinese characteristics, we will promote balanced development of large, medium-sized and small cities and towns on the principle of balancing urban and rural development, ensuring rational distribution, saving land, providing a full range of functions and getting larger cities to help smaller ones. Focusing on increasing the overall carrying capacity of cities, we will form city clusters with megacities as the core so that they can boost development in other areas and become new poles of economic growth.

Interpretation: The gap in development among regions remains a major problem in China's economic development. Important measures the Chinese Government has adopted to promote balanced development among regions include the rejuvenation of the old industrial bases in northeast China, vigorously promoting the development in the central region and actively supporting the eastern coastal region to take the lead in development.

The central budget has allocated more than 130 billion yuan to the rejuvenation of northeast China from 2003 until now, and will spend more than 720 billion yuan in the project of West China Development from 2006 to 2010. To narrow the widening gap in development of different regions and the regional gap in social welfare for local residents will remain a major task for China's economic and social development as well as a basic consideration for the planning of strategies for balanced development among regions.

Point VI: Improve the basic economic system and the modern market system.

Quote: We will deepen the reform to introduce the corporate and shareholding systems in state-owned enterprises (SOEs), improve the modern corporate structure and optimize the distribution and structure of the state sector of the economy to enhance its dynamism, dominance and influence. We will deepen the reform of monopoly industries by introducing competition, and strengthen government regulation and public oversight of them. We will press ahead with the reform of collective-owned enterprises and develop various forms of collective and cooperative economic operations. We will promote equitable market access, improve the financing environment and remove institutional barriers in order to promote development of individually-owned businesses and private companies as well as small and medium-sized enterprises.

Interpretation: It was proposed to preliminarily establish a socialist market economy by the end of the 20th century at the Third Plenary Session of the 14th CPC Central Committee held in November 1993. For more than a decade, the Chinese Government has deepened all kinds of reforms aimed at establishing a socialist market economy and attained great achievements, especially after China's entry to WTO in 2001. The market economic system has been basically established in China. Today, 155 central SOEs, nearly 30,000 local SOEs and nearly 250,000 privately-owned, foreign-funded and other non-public enterprises are competing with each other in the Chinese market. An open and competitive market has basically formed in China.

Point VII: Deepen fiscal, taxation and financial restructuring and improve macroeconomic regulation.

Quote: We will adopt fiscal and taxation systems conducive to scientific development and set up sound compensation systems for use of resources and for damage to the ecological environment. We will proceed with financial reforms to develop various types of financial markets and build a modern financial system that is inclusive of different forms of ownership and different ways of operation and that features a reasonable structure, complete functions, efficiency and security. We will improve the renminbi exchange rate regime and gradually make the renminbi convertible under capital accounts. We will improve the state planning system. We will give play to the guiding role of national development plans, programs and industrial policies in macroeconomic regulation and combine the use of fiscal and monetary policies to improve macroeconomic regulation.

Interpretation: China's fiscal and tax reform has reaped results. The Law on Enterprise Income Tax that sets a unified income tax rate for domestic and foreign-funded companies was adopted in March. The government is speeding up the reform of fuel oil taxation that concerns ordinary Chinese citizens.

The financial sector has realized overall opening up to the outside world. Up to now, 75 foreign-funded banks from 26 countries and regions have established 192 branches and 209 representative offices in China. Three major state-owned commercial banks have been listed successfully.

Renminbi exchange rate reform has also made breakthroughs. The reform was carried out in 2005 to make the yuan a limited free convertible currency. According to latest statistics from the Bank for International Settlements, the exchange rate of renminbi against the U.S. dollar appreciated by 6.19 percent in September, much bigger than the appreciation of the middle price of renminbi against U.S. dollar which stood at 3.96 percent.

Administrative means under the planned economic system have been replaced by more effective economic macro-control. This year, the central bank has raised interest rates five times and raised the reserve requirement ratio eight times, as responses to excess financial market liquidity. The macro-control measures will be further improved in the future.

Point VIII: Expand opening up in scope and depth and improve our open economy.

Quote: We will deepen the opening up of coastal areas, accelerate that of inland areas and upgrade that of border areas, so that opening up at home and opening to the outside world will promote each other. We will expedite transformation of the growth mode of foreign trade, stress quality, adjust the mix of imports and exports, promote transformation and upgrading of processing trade, and energetically develop service trade. We will make innovations in the way of using foreign capital, improve the structure of foreign investment utilized, and let the use of foreign capital play a positive role in facilitating independent innovation, industrial upgrading and balanced development among regions. We will make innovations in our way of overseas investment and cooperation, support domestic enterprises in carrying out international operations of R&D, production and marketing, and accelerate the growth of Chinese multinational corporations and Chinese brand names in the world market. We will vigorously carry out mutually beneficial international cooperation in energy and resources. We will implement a strategy of free trade zones and expand bilateral and multilateral trade and economic cooperation. We will adopt comprehensive measures to maintain a basic equilibrium in the balance of payments. We must guard against international economic risks.

Interpretation: Thanks to its reform and opening-up policy, China has become an important open market for multinationals and their products.

According to the World Investment Report 2007 published by the United Nations Conference on Trade and Development, China attracted the most foreign direct investment (FDI) among developing economies and ranked fifth in the world. There are 52 overseas institutions that have been licensed as qualified foreign institutional investors (QFIIs) in China and China is expected to expand the combined investment quotas of QFII investment from $10 billion to $30 billion. While foreign capital poured in, Chinese enterprises are actively pursuing overseas expansion. China's outward direct investment (ODI) reached $16.1 billion last year, ranking 18th in the world. China now has 22 qualified domestic institutional investors (QDIIs).

The proposal to expand opening up in scope and depth and improving our open economy conveys three pieces of important information: China will adhere to the policy of opening up, China will open wider in terms of its industrial sectors and China will open further in terms of technology, R&D as well as intellectual property rights.