IE 11 is not supported. For an optimal experience visit our site on another browser.

China premier: ‘Critical period’ due to inflation

China Politics
Chinese Premier Wen Jiabao addresses the opening session of the National People's Congress held at the Great Hall of the People in Beijing on Wednesday. AP
/ Source: The Associated Press

China's premier on Wednesday extolled the prosperity the Communist government has brought to many Chinese, yet he sounded an alarm that inflation could derail the country's rapid emergence.

The mixed message in Premier Wen Jiabao's annual policy address underscored the problems Chinese leaders face in meeting public expectations for ever rising standards of living.

For the first time in more than a decade, inflation is emerging as a danger at home, potentially eroding incomes of a fledgling middle class and inflaming tensions between the newly rich and the majority low-income workers and farmers. Overseas, the U.S. economic woes and trade friction with Europe could wreck key markets for job-creating export industries.

"All this could adversely affect China's economic development," Wen told 2,970 delegates in his address opening the national legislature's annual session. "China is now in a critical period in its reform and development."

In a 2 1/2-hour state-of-the-nation speech, Wen ticked off proud achievements since he and Communist Party chief Hu Jintao took office five years ago: China has soared to become the world's No. 4 economy, just behind Germany. Urban incomes rose 80 percent, rural ones by nearly that much.

"There was a great increase in the number of family owned cars and rapid spread in the use of cell phones, computers and Internet services," Wen said. "The number of people going on vacations increased several fold."

But just as the two-week meeting of the National People's Congress should be celebrating China's middle class and world-power status, the event is unmasking crucial divisions hampering the leadership's ability to tackle inflation and other new challenges.

Can anyone impose policies?
Unlike the totalitarian days of Mao Zedong, when officials marched in lockstep with Beijing, the Hu-Wen team has been criticized by business executives and ordinary Chinese for being weak, unable to impose policies on local governments and agencies on the cleaning up the environment, and halting land confiscation — issues increasingly inciting protests.

"In Mao Zedong's day, one soldier could command 10,000. Now 10,000 soldiers cannot command one," said Liu Anjun, a campaigner for citizens rights.

Complicating matters, the congress — a largely powerless body filled with influential politicians and officials — falls amid a painful leadership transition. At a party conclave last fall, Hu was forced to pass over a favored deputy and accept a compromise candidate as a presumptive successor, Xi Jinping, the son of a now dead party power-broker.

There are signs the cohabitation is not going smoothly, political experts said, with one former Foreign Ministry official likening it to a forced adoption.

Xi was recently given a plum assignment, overseeing final preparations for the greatly anticipated Beijing Olympics. The congress is expected to bring him a step closer to succeeding Hu, anointing him a vice president, a position Hu formerly held. Meanwhile, Hu's protege, Li Keqiang, is expected to be named a vice premier, putting him in the firing line on fighting inflation.

Coal price could double
Consumer prices rose 7.1 percent in January, the highest rate in 11 years, led by even higher costs for food and housing. Prices for coal, which feeds two-thirds of the boisterous economy's energy demand, are projected by some economists to double this year.

"The new collective economic leadership team will also be seriously tested in the months and years to come," said Cheng Li, an expert on elite Chinese politics at the Brookings Institute in Washington. "This can be anything but 'smooth.'"

Another signature policy the congress is slated to adopt — a restructuring of government ministries — shows signs of being watered down. Wen told the congress Wednesday the streamlining to create a few enlarged ministries and cut down waste would go ahead, though he provided few details.

Already, an influential lawmaker, Cheng Siwei, was quoted on a local Web site as saying the Finance Ministry would not be part of the reorganization. A new Environment Ministry will not be given authority over provincial environmental bureaus.

The worry among policy watchers is that while leaders quibble, inflation may persist and with it the likelihood of social unrest.

"In the past 30 years, every time inflation was high, social protests, political protests were likely to emerge. That's why this issue is the most pressing issue for the Cabinet," said Ding Xueliang of the Carnegie Endowment for International Peace in Beijing.

Discontent over soaring food costs fueled the Tiananmen democracy protests that nearly toppled the party in 1989. Wen, who was a senior party official in 1989, on Wednesday called for extending price controls on food and basic goods and for curbing investment to tamp down the demand driving prices higher. He also promised subsidies to encourage farmers to grow more food and protect the poor and pensioners.

"Only by appropriately spreading the fruits of economic development among the people can we win their support and maintain social harmony and stability," Wen told the congress.