Labels: inflation, posted by Eunice

(BEIJING) — China's premier called for "powerful measures" to rein in inflation that is battering ordinary Chinese and warned of risks from a global slowdown and the U.S. credit crisis.

In an annual policy speech to legislators Wednesday, Premier Wen Jiabao said a top priority will be cooling sharp price rises blamed on shortages of key food items. He said Beijing will use price controls and credit curbs to hold annual inflation to 4.8 percent.

"To fulfill this task, we must take powerful measures to increase effective supply while curbing excessive demand," Wen told members of the National People's Congress. He warned that China faces "considerable inflationary pressure."

Chinese leaders worry that high inflation could erode rising living standards and hurt China's large numbers of rural and urban poor — people that Wen and President Hu Jintao have vowed to help.

Inflation began shooting up in mid-2007, reaching 7.1 percent in January — the highest rate in 11 years — led by an 18.2 percent jump in food prices. Economists expect it to rise further before peaking in coming months as efforts to boost food supplies start to show results.

Wen said Beijing will stick to a tight monetary policy and improve financial controls to restrain fast credit growth that authorities worry could fuel inflation or ignite a debt crisis.

The 4.8 percent inflation target is equal to last year's consumer price rise, showing the difficulties the government faces as the economy grows rapidly. Rising consumer and business demand, coupled with shortages last year of pork and grain, is pushing up prices of food, land and other inputs to the country's price index.

Overall, Wen said the government was sticking to its normal planning target for economic growth of 8 percent, well below outside forecasts of up to 10.5 percent following 2007's torrid 11.4 percent expansion. The government often sets a low initial target for budget purposes and raises it as the year progresses.

"The primary task for macro-economic regulation this year is to prevent fast economic growth from becoming overheated growth and keep structural price increases from turning into significant inflation," Wen said.

The premier also promised to make China's exchange rate system more flexible —a step sought by Washington and other trading partners that say Beijing keeps its currency undervalued, fueling the growth of its huge trade surplus. But Wen gave no details on how fast China's yuan might be allowed to rise in value.

Wen warned that China's export-driven economy faces risks from slowing global growth, the U.S. credit crisis, high oil prices and increasing protectionist sentiment abroad.

"The current imbalance in the global economy is only getting worse and global economic growth is slowing, making international competition even fiercer," the premier said. "All this could adversely affect China's economic development."

To tamp down price rises, Wen ordered measures ranging from more subsidies to encourage farmers to produce more grain and vegetable oil to further controls on prices for scarce goods and government services.

For the poor, Wen said subsidies would be raised "to ensure that their basic living standards do not drop because of basic price increases."

Wen also vowed to redouble efforts to help farmers in southern China recover from snowstorms that clogged transportation and worsened food shortages. He said the government would focus on repairing damaged power grids and ensuring supplies of coal and gasoline.

The storms "caused significant losses to China's economy and made life very difficult for disaster victims," Wen said. "We will learn from this large-scale natural disaster."

Wen said regulators will enforce credit curbs and force borrowers to promote conservation. That appeared to contradict speculation that an order to Chinese banks to help farmers recover from the storms would lead to a nationwide easing of credit controls.

"We will limit the increase in long- and medium-term loans, particularly to enterprises that are energy intensive or highly polluting and enterprises in industries with excess production capacity," the premier said.

Extracted by Seok Xian (30 March 2008)

Labels: economic challenges, inflation, Seok Xian (07S415)