China Targets 8% Growth This Year as Wen Vows to `Decisively' Curb Prices

China’s government will target 8 percent economic growth this year and “decisively” curb increases in prices that may threaten social stability, Premier Wen Jiabao said in his state-of-the-nation report.

“We cannot allow price rises to affect the normal lives of low-income people,” Wen said in a report to the annual meeting of the National People’s Congress in Beijing today. He confirmed a goal of holding inflation to 4 percent for the full year.

Wen, 68, needs to tame inflation, boost incomes and narrow the gap between rich and poor to maintain social stability and strengthen support for the Communist Party’s 61-year rule. In the past two weekends, the government has deployed hundreds of police in Beijing and Shanghai after Internet calls for so- called Jasmine protests, inspired by revolts in the Middle East and North Africa.

“The top concerns for the public are issues such as inflation, property prices, and income distribution,” Chang Jian, a Hong Kong-based economist with Barclays Capital, said before today’s meeting. “Corruption is also on the list.”

The budget deficit may be 900 billion yuan ($137 billion), or 2 percent of gross domestic product, Wen said. He confirmed that the nation is maintaining a “proactive” fiscal policy and a “prudent” monetary policy.

Photographer: Adam Dean/Bloomberg

Wen Jiabao, China's prime minister, gestures while speaking at the opening of the National People's Congress in Beijing, March 5, 2011. Close

Wen Jiabao, China's prime minister, gestures while speaking at the opening of the... Read More

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Photographer: Adam Dean/Bloomberg

Wen Jiabao, China's prime minister, gestures while speaking at the opening of the National People's Congress in Beijing, March 5, 2011.

Top Priority

“Inflation expectations have increased” and controlling price is the top economic priority, Wen said. The government will manage liquidity, ensure agricultural production and use price controls when needed, he added.

The premier had already disclosed an annual growth target of 7 percent for the nation’s five-year plan, running from 2011 to 2015, down from the previous 7.5 percent. The goals are routinely surpassed, with China’s economy expanding an average 11 percent over the past five years, adding jobs and boosting incomes.

The premier will read his report to more than 4,000 delegates gathered at the Great Hall of the People, alongside Tiananmen Square, for a meeting first held in 1954 to approve government policies. Members of the congress include Zong Qinghou, the billionaire chairman of Hangzhou Wahaha Group and China’s richest man.

Bubble Risks

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 recovery from the financial crisis. 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.

“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 at China International Capital Corp. Ltd. said in a March 2 report.

Besides tackling price pressures, the government aims to cut dependence on exports and investment and boost consumer spending, a shift that could help to ease global economic imbalances blamed for the financial crisis.

Wealth Gap

“Expanding domestic demand is a long-term strategic principle,” Wen said in the report. Methods for boosting consumer spending will include subsidies for urban low-income earners and farmers and continued incentives for rural purchases of home appliances, he said. The government will also encourage private investment.

A stronger Chinese currency would also boost consumption, the U.S. government says. Another step may be raising the threshold for income tax from 2,000 yuan per month, a plan already approved by the State Council.

On Feb. 27, Wen pledged to punish abuse of power by officials and narrow the wealth gap, comments that coincided with public security operations in Beijing and Shanghai to prevent protests after an open letter called for “jasmine” rallies, named after the January uprising in Tunisia that overthrew President Zine El Abidine Ben Ali.

China’s Gini coefficient, an income-distribution gauge used by economists, has climbed to near 0.5 from less than 0.3 a quarter century ago, according to Li Shi, professor of economics, School of Economics and Business at Beijing Normal University. University. The measure ranges from 0 to 1, and the 0.4 mark is used as a predictor by analysts for social unrest.

The wealth gap is at levels not seen outside of Africa, Credit Suisse Group AG said in an August report. The average full-year income in the countryside last year was 5,919 yuan ($900), according to the statistics bureau.

“The new five-year plan will be more about quality of growth,” Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets, said before today’s report. “The government is going to pay more attention to sustainable growth, environment, better distribution of income, rather than pure GDP pursuit.”

--Zhang Dingmin, Zheng Lifei, Michael Forsythe, Sophie Leung, Kevin Hamlin. Editors: Paul Panckhurst, Nerys Avery.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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