China will target inflation as the top economic priority this year and narrow the gap between rich and poor as the government seeks to maintain social stability, Chinese Premier Wen Jiabao (溫家寶) told lawmakers in Beijing.
“We cannot allow price rises to affect the normal lives of low-income people,” Wen said in his state-of-the-nation report to the annual meeting of the National People’s Congress on Saturday.
“Inflation is a potential trigger point for social discontent,” said Liu Li-gang (劉利剛), an economist at Australia & New Zealand Banking Group in Hong Kong who formerly worked for the Hong Kong Monetary Authority and the World Bank.
The government needs to boost lending and deposit rates by 0.75 percentage point by year-end, as well as raising wages and giving subsidies to the poor, he said.
Wen identified illegal land seizures, food safety, house price increases and corruption as top public concerns and said institutional changes are needed to end the excessive concentration of power. The government will “decisively” counter inflation and make it the “top priority in macroeconomic control,” he said.
The budget deficit could be 900 billion yuan (US$137 billion), or 2 percent of GDP, 150 billion yuan less than targeted for last year, Wen said. He confirmed that the nation is maintaining a “proactive” fiscal policy and a “prudent” monetary stance.
“Expanding domestic demand is a long-term strategic principle,” Wen said in the report.
Subsidies for urban low-income earners and farmers and continued incentives for rural purchases of home appliances may boost spending, he said.
The premier had already disclosed an annual growth target of 7 percent for the five-year plan running through 2015, down from the previous 7.5 percent.
The world’s second-biggest economy faces heightened inflation and asset-bubble risks and banks may be saddled with more bad loans after a record expansion in credit drove China’s economic recovery.
Consumer prices rose an annual 4.9 percent in January and food prices jumped, even after the central bank increased interest rates and banks’ reserve requirements. Wen pledged a “comprehensive audit” of local-government debt, after a surge in borrowing linked to the stimulus program from late 2008.
To control inflation, the government will manage liquidity, ensure agricultural production and use price controls when needed, Wen said.
Officials will curb real-estate speculation and “adjust and improve” property tax policies, he added.
“The main challenge for controlling inflation is the property-price bubble stemming from overly loose monetary conditions relative to asset prices,” economists led by Peng Wensheng (彭文生) at China International Capital Corp Ltd (中國國際金融), said in a report on Wednesday.
China’s leaders are also seeking to maintain stability as the country shifts from a predominantly rural to mostly urban society. During the five years through 2015, the level of urbanization will rise to 51.5 percent from 47.5 percent, Wen’s report said.
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