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BEIJING, March 6 - Finance Minister Xiang Huaicheng Thursday announced a record 319.8 billion yuan (38.6 billion dollar) budget deficit this year on the second day of China's annual parliamentary session.

The figure marks a 3.2 percent increase over 2002's record 309.8 billion yuan deficit, which itself was 25 percent higher than the 2001 figure.

Total revenues in the draft central and local budgets are 2.05 trillion yuan, up 8.4 percent over 2002, while total expenditures in the two budgets will reach 2.37 trillion yuan, up 7.7 percent over last year.

In his speech to the National People's Congress, Xiang pointed to uncertainties in the global economy, insufficient domestic demand, an irrational supply structure and problems in the reform of state-run enterprises as the reasons to continue the fiscal pump priming.

"We must be aware that there are still outstanding contractions and problems in our economic development," he said.

"We must be totally modest, prudent and free from arrogance and rashness in our work and maintain the style of plain living and hard work."

He said strenghthening the collecting of taxes and cracking down on tax cheats would be a key focus this year.

Xiang said corruption and waste must be stamped out in government departments and institutions.

"Chaotic financial and economic order has not improved fundamentally," he said.

"Falsification of accounts, tax evasion and tax fraud, extravagance and waste in the use of funds and other problems are still serious.

"Progress in financial reform is uneven."

He said although China had scored achievements in its financial work, "we are fully aware that there are some pressing problems in our financial operations".

He highighted a low increase in revenues and the high growth of expenditures and said China had entered a peak period for debt payment while economic and social development was putting increasing pressure on revenues and expenditures.

To spur growth, treasury bonds for construction would continue to be issued, this year to the amount of 140 billion yuan (16.9 billion dollars).

He said expenditures would be increased for social security programs and to stimulate agricultural, rural economic and social development.

Defence spending would rise by 9.6 percent, slower than in previous years. 

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