Shanghai: Soaring food prices top China's concerns

The cautious tone of his annual policy speech, combined with a higher government projection for inflation this year, add to the growing expectations for slower growth in 2008 even though the mainland's economy last year grew at its fastest pace in 13 years.

Wen said the government's target was for the Chinese economy to grow by 8 per cent this year, a modest estimate unchanged from last year's. But he raised the official forecast for inflation from 3 per cent to 4.8 per cent.

The higher forecast for inflation is a belated acknowledgement of the uphill task that China is facing in its attempts to cool prices, which are at an 11-year high.

Official figures showed that the price of pork, a staple meat, rose nearly 60 per cent in January compared to last year, while that of cooking oil increased by nearly 40 per cent.

"The current price hikes and increasing inflationary pressures are the biggest concerns of the people," Wen told about 3,000 lawmakers at the opening session of the National People's Congress (NPC), the Chinese parliament.

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

He said the government would stick to a tight monetary policy to prevent excessive lending from further fuelling inflation.

Beijing would also try to prevent price hikes in food and housing from creeping into other sectors.

Wen acknowledged, however, that meeting these goals would not be easy, given rising global commodity prices and the threat of a global economic slowdown.

He cited the sub-prime mortgage crisis in the United States, the falling value of the greenback, and rising prices of grain and oil as factors which could "adversely affect China's economic development".

"We must be fully prepared for changes in the international environment and become better to defuse risks," added Wen, who would be formally conferred a second five-year term as Premier during the two-week NPC meetings.

The NPC is also expected to approve the nominations for several new government leaders, among them three vice-premiers who would be overseeing the crucial portfolios of macro-economic policy, finance, and foreign trade.

Another closely watched item on the agenda is the plan to create three to four "super-ministries" that would enhance Beijing's control over key sectors such as transport, industry, and telecommunications.

Wen, however, gave only passing mention to these issues in his 140-minute speech, which focused heavily on the economy and socio-economic issues.

In keeping with the administration's populist agenda, the Premier announced healthy increases in the central government's budget for social welfare and public services.

For instance, Beijing's budget for health care is to increase by 25 per cent, while spending on education and social security will rise by 45 per cent and 24 per cent respectively. The government has also earmarked 55.5 billion yuan (S$11 billion) to support and rebuild parts of southern China battered by devastating winter storms earlier this year.

But analysts said it remained unclear how, or if, these impressive figures would translate into real results.

"In social services, much of the burden is on local government spending - and as the central government increases its spending, local governments often decrease theirs, to pay off debts or to spend on other things," wrote Dr Stephen Green of Standard Chartered in a research note yesterday.

There was an unexpected bright spot in Wen's report yesterday, when he disclosed that pollution and energy use in China had fallen by about 3 per cent last year.

"People became more aware of the importance of conserving resources and protecting the environment, and made greater efforts in this area," the Premier said.

By Chua Chin Hon

The Straits Times

Publication Date: 06-03-2008