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China seeks to slow price hikes, red-hot economy

Chinese Premier Wen Jiabao (溫家寶) said yesterday that inflation was now the top concern for the nation's 1.3 billion people, as he pledged to take steps to slow the Asian giant's red-hot economic growth.

In an annual address to parliament, Wen also pointed to problems in the US and elsewhere that were set to hurt China's economy, now the fourth largest in the world.

Wen said the government would look to slow growth to approximately 8 percent this year, from 11.4 percent last year, and keep consumer prices from rising more than 4.8 percent.

SOARING COSTS

However, the premier admitted the inflation goal would be tough to meet after the cost of food and other necessities soared last year, fueling discontent with the government.

"The current price hikes and increasing inflationary pressures are the biggest concern of the people," Wen told the 3,000 delegates to the National People's Congress at the start of its annual full session.

"Because factors driving up prices are still at work, upward pressure on prices will remain great this year," he said.

Inflation is one of the most sensitive issues for Chinese Communist Party rulers, as the sharply rising cost of essentials have the potential to lead to social instability.

The 4.8 percent inflation target was the same as the actual rate recorded last year -- an 11-year high that defied government pledges to rein it in at just 3 percent.

Aside from inflation, the premier said the top economic priority for the government was to prevent the booming economy from overheating.

China set the same economic growth target of about 8 percent last year, but ended up with an economy that expanded at double-digit pace for a fifth straight year.

Wen listed a litany of challenges facing China from abroad, including the US subprime crisis and the threat of trade protectionism.

"The impact of the US subprime mortgage crisis is expanding, [and] the value of the dollar is continuing to fall," he said. "Trade protectionism has gotten worse, and trade frictions have increased.

"China is now in a critical period in its reform and development, and we must be fully prepared for changes in the international environment and become better able to defuse risks," he said.

Addressing an issue of particular interest to global audiences, Wen suggested the Chinese currency would be made more flexible.

"We will improve the [yuan] exchange rate regime to make the exchange rate more flexible," Wen said.

China moved the yuan away from a pegged exchange rate to the US dollar in July 2005 and has since allowed its currency to strengthen by about 15 percent.

BUDGET DEFICIT

Wen said China expected a central government budget deficit of 180 billion yuan (US$25.4 billion) this year, down 27 percent from last year.

Economists said they doubted Wen's words would herald any dramatic tightening of its policies.

"The inflation issue is entirely a result of insufficient supply, so the main objective is to boost supply, something that overly tight policies are unlikely to do," said Sun Mingchun (孫明春), an economist for Lehman Brothers.

Experts said the growth target should not to be taken too literally.

"The 8 percent growth target is just meant as guidance," said Chen Jijun, a Beijing-based analyst with Citic Securities.

"It's meant to say that we shouldn't just target growth and nothing else, but in the end actual growth always ends up being higher than 8 percent," Chen said.
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