China eyes 8% growth; vows to fight inflation

China eyes 8% growth; vows to fight inflation

By MALMINDERJIT SINGH

In an annual report on the opening day of Chinese parliament yesterday, Premier Wen Jiabao announced an economic growth target of 8 per cent during a crucial year of recovery. In his televised “state of the nation” address, Mr Wen also reassured the legislature that the government’s other priorities for the year will be to combat inflation and risks in the banking sector so as to keep growth on track.
Contrary to his intent to curb rising prices, however, Mr Wen noted that China would still stick to loose monetary and fiscal policies since global growth remains weak. “This year the main targets we have set for economic and social development are increasing GDP by approximately 8 per cent . . . (and) holding the rise in consumer prices to around 3 per cent,” reported AFP.
Speaking to The Business Times on this contradiction, Liu Yunhua, from the Nanyang Technological University, explained: “Due to the complication of the Chinese economy, some sectors need to be expanded, and so credit should be more available to them, while other sectors such as the housing market need to be cooled as they are over-heated. So for these, the credit has to be tightened.”
Accordingly, the government would cut its increase in spending, by more than half, to 11.4 per cent, to address the ill-effects of the stimulus package implemented during the global crisis.
Despite this, there was higher government spending announced in education, health care, low-income housing and social security. In addition, the Associate Press reported that the increases were higher than that given to the military, which is projected to receive a 7.5 per cent budget boost, its lowest in two decades.
This shift in focus signals an intention by the government to achieve more inclusive growth and address the widening rich-poor divide.
“China needs to spend more money on education and housing. China’s budget on education is lower than the world average and therefore it is normal to spend more in this sector. For housing, increasing the supply of public housing will help cool the sector down and complement the tightening of credit here.
“Expenditure in these areas addresses the growing concern of social inequality, which affects the stability of the Chinese society and is an urgent issue that needs to be attended to,” said Assoc Prof Liu.
On the yuan, Mr Wen said that China would keep its value “basically stable” in 2010.
Zhao Hong, a visiting senior research fellow at the East Asian Institute in Singapore, defended this policy as he explained that a lower and stable yuan will be good for economic development as fluctuations will result in a loss of confidence.
Dr Zhao added that while an appreciation of the yuan will increase imports from the West, such a move will affect Chinese export firms and may result in job losses.
This latest announcement by Mr Wen on the yuan is another snub to China’s Western trading partners that have raised concerns about the currency being undervalued. Nevertheless, the main Chinese index responded well to Mr Wen’s address and the strong signal sent by the government on economic growth.
The Shanghai Composite Index ended at 3,031.065 points yesterday, up 0.25 per cent, after falling 2.4 per cent on Thursday in its biggest one-day fall in five weeks, according to Reuters.