Premier Says China Faces Inflation Pressure and Risk of Drastic Economic Fluctuation.
China's premier warned Tuesday already high inflation may accelerate as the country prepares to host the Beijing Olympics. But he promised an anxious public that price increases can be held to the official 4.8 percent target this year.
Premier Wen Jiabao said China's economy should grow strongly this year, though he acknowledged he is "deeply worried" about the global impact of the U.S. subprime crisis. Beijing's top priority is cooling inflation that is battering ordinary Chinese, Wen said at a nationally televised news conference at the end of China's annual legislative session.
"We are under mounting inflationary pressure. We also face the potential risk of drastic economic fluctuations," Wen said. He announced no new initiatives, but said, "if we take the right measures, we are confident we can control inflation."
Inflation soared to 8.7 percent in February, its highest level in nearly 12 years, driven by a 23.3 percent jump in food costs despite the imposition of price controls. That has fueled concern about unrest in a society where the poor spend up to half their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests, a scenario that communist leaders are eager to avoid, especially as China comes under foreign scrutiny ahead of the Summer Games.
Sharp price rises began in mid-2007, triggered by shortages of pork, grain and some other food items. Nonfood inflation is low, with prices in February rising by 1.6 percent over the same month last year. But costs of wholesale goods and raw materials are rising, adding to pressure for higher consumer prices.
Beijing has raised interest rates repeatedly to cool pressure for price rises amid a boom that is expected to see the economy grow by at least 9 percent this year after an 11.4 percent expansion in 2007. China has the right conditions to control inflation, with a "general oversupply" of industrial goods and an ample 150-200 million tons of government grain reserves, Wen said.
The government has been releasing grain at below-market prices to ease shortages. Economists say Wen's 4.8 percent inflation target looks unrealistic as wholesale prices rise, increasing pressure for companies to pass on higher costs to consumers. Outside forecasts of full-year inflation are as high as 7.2 percent.
Still, Wen said, "we have no plans to change this predictive goal." "We believe that by setting this goal we have shown the resolve of the government to control price rises," he said. "We also want to stabilize people's expectations for price rises."
Wen warned that China was bound to be affected by the subprime crisis, which has sent financial markets reeling. "I have watched these developments in the world economy very closely and I am deeply worried," he said. But he said China's own economic fundamentals are sound. "China still has vast market potential, especially in rural areas," he said. "That is why we are confident of China's economic prospects."
The premier promised more market-style reforms to help control inflation. "We need to strengthen and improve our efforts in macroeconomic regulation and we need to give full play to market forces in allocating resources," he said. That will include reforms of China's government-owned banking industry, he said, without giving details.
One of China's newly appointed vice premiers, Wang Qishan, a former president of a major government bank, is expected to be put in charge of re-energizing finance and banking reforms that have stalled in recent years. Wang appeared at the news conference with Wen but did not speak.
China's premier warned Tuesday already high inflation may accelerate as the country prepares to host the Beijing Olympics. But he promised an anxious public that price increases can be held to the official 4.8 percent target this year.
Premier Wen Jiabao said China's economy should grow strongly this year, though he acknowledged he is "deeply worried" about the global impact of the U.S. subprime crisis. Beijing's top priority is cooling inflation that is battering ordinary Chinese, Wen said at a nationally televised news conference at the end of China's annual legislative session.
"We are under mounting inflationary pressure. We also face the potential risk of drastic economic fluctuations," Wen said. He announced no new initiatives, but said, "if we take the right measures, we are confident we can control inflation."
Inflation soared to 8.7 percent in February, its highest level in nearly 12 years, driven by a 23.3 percent jump in food costs despite the imposition of price controls. That has fueled concern about unrest in a society where the poor spend up to half their incomes on food. Bouts of high inflation in the 1980s and '90s sparked protests, a scenario that communist leaders are eager to avoid, especially as China comes under foreign scrutiny ahead of the Summer Games.
Sharp price rises began in mid-2007, triggered by shortages of pork, grain and some other food items. Nonfood inflation is low, with prices in February rising by 1.6 percent over the same month last year. But costs of wholesale goods and raw materials are rising, adding to pressure for higher consumer prices.
Beijing has raised interest rates repeatedly to cool pressure for price rises amid a boom that is expected to see the economy grow by at least 9 percent this year after an 11.4 percent expansion in 2007. China has the right conditions to control inflation, with a "general oversupply" of industrial goods and an ample 150-200 million tons of government grain reserves, Wen said.
The government has been releasing grain at below-market prices to ease shortages. Economists say Wen's 4.8 percent inflation target looks unrealistic as wholesale prices rise, increasing pressure for companies to pass on higher costs to consumers. Outside forecasts of full-year inflation are as high as 7.2 percent.
Still, Wen said, "we have no plans to change this predictive goal." "We believe that by setting this goal we have shown the resolve of the government to control price rises," he said. "We also want to stabilize people's expectations for price rises."
Wen warned that China was bound to be affected by the subprime crisis, which has sent financial markets reeling. "I have watched these developments in the world economy very closely and I am deeply worried," he said. But he said China's own economic fundamentals are sound. "China still has vast market potential, especially in rural areas," he said. "That is why we are confident of China's economic prospects."
The premier promised more market-style reforms to help control inflation. "We need to strengthen and improve our efforts in macroeconomic regulation and we need to give full play to market forces in allocating resources," he said. That will include reforms of China's government-owned banking industry, he said, without giving details.
One of China's newly appointed vice premiers, Wang Qishan, a former president of a major government bank, is expected to be put in charge of re-energizing finance and banking reforms that have stalled in recent years. Wang appeared at the news conference with Wen but did not speak.
No comments:
Post a Comment