China is to follow a tight monetary policy to address the still-unsolved problem of excessive liquidity, and the government pledges to add another several hundred billion yuan in additional funds to boost agriculture, education, medicare and strengthen the nation's social safety network.

Addressing the First Session of the 11th National People's Congress, Premier Wen Jiabao said in his government work report that the decision to follow a tight monetary policy is based on "the strong possibility of a resurgence in fixed asset investment, continued excessive supplies of money and credit, the still-unsolved problem of excess liquidity, and considerable inflationary pressure."

However, Wen said a prudent fiscal policy is still needed to "promote structural adjustment and balanced development," and increased expenditures necessary "to shore up weak links, improve people's lives and deepen reform."

China's fiscal policy has been kept abreast with its monetary policy in the past, whether they were pro-active, prudent or tight. Economists said that the breakaway from tradition this year indicates the government efforts to prevent the economy from overheating while turning the fruit of the country's soaring economic growth in the past three decades to benefit more of the country's general public, especially those in the rural areas and the urban poor.

When the general public have more to spend, they can turn into another force to drive up the nation's economic development in the future, observers said.

According to Wen's report, the central government budget deficit this year will be set at 180 billion yuan, 65 billion yuan less than last year, and the government plans to issue 30 billion yuan of treasury bonds for investment, 20 billion yuan less.

At the same time, allocations from this year's central government budget related to agriculture, rural areas and farmers total 562.5 billion yuan, a year-on-year increase of 130.7 billion yuan. Other expenditures relating to the welfare of the public include:

- Central government allocation for education will increase from last year's total of 107.6 billion yuan to 156.2 billion yuan, and local governments will also increase their spending. The premier pledged "free compulsory education universally available in both urban and rural areas."

- China will extend the trial of basic medical insurance for urban residents to over 50 percent of the country's cities. China will fully implement the new type of rural cooperative medical care system in all rural areas. Within two years, China will raise the standard for financing from 50 yuan to 100 yuan per person per year, with central and local government contributions to be raised from 40 yuan to 80 yuan per person.

- The central government will allocate 83.2 billion yuan to support the reform and development of health care, an increase of 16.7 billion yuan over last year, with the focus of spending on facilities at the urban community and village level.