China s economy faces tough year

Premier Wen Jiabao said Sunday he fears social stability and even the solidarity of the ruling power face the threat of looming inflation, unfair income distribution and corruption. At his annual press meeting after the parliament session in Beijing, Wen underscored continuity and stability of the macro economic policy and signaled that his country was not ready to withdraw a massive stimulus package bankrolled by authorities in 2008 to ward off the global financial downturn.

We will continue implementing proactive fiscal policy and moderately loose monetary policy to consolidate the trend of economic recovery, Wen told reporters in Beijing, saying that exit strategy on stimulus should be very cautious and flexible.

China's economy grew 8.7 percent in 2009, the fastest among major economies, thanks to a 4-trillion yuan ($588 billion) two-year investment and a record 9.59 trillion yuan of new loans last year.

Growth at such rate prompted fears of economic overheating and asset bubbles, as it seemed to become increasingly tricky for the government to spur development while remaining committed to reining in inflation.

Inflation, along with unfair income distribution and corruption, may undermine social stability and even the solidarity of the ruling power, Wen said, in response to a question concerning economic bubbles.

Consumer prices climbed to 2.7 percent in February, close to the 3 percent full year target set by the government. The country's top legislature approved Wen s proposed annual 7.5 trillion yuan of new loans this year.

Wen urged striking a balance between maintaining relatively fast and stable development with economic structural adjustment and management of inflation expectations to avert a possible economic double dip this year. He said uncertainty still lingered over world storyeconomic recovery and major challenges and problems for the global economy had not been fully addressed.

He said the country has to prioritize economic restructuring and growth pattern transformation to solve China s economic imbalances.

Wen highlighted agriculture, calling it the life-line of the national economy that plays a decisive role in ensuring economic growth and managing inflation expectation.

Zhao Xijun, deputy dean of the School of Finance at the Renmin University of China, told the Global Times that measures to manage inflation expectation should be aimed at specific areas, instead of action to raise interest rates.

The government will cautiously make use of interest rates, an important economic leverage, despite some expectations on the market, Zhao said.

Inappropriate employment of tools will lead to fluctuation in the economy, he said.

Inflation would lead to overheating, cause economic turbulence and dampen the confidence of consumers and investors. It will eventually make the recovery an even thornier and more arduous process, Zhao said.

The premier also reiterated the government s determination to close a widening rich-poor gap increasingly seen as a threat to social stability. The country s legislative body vowed at its session to enlarge the coverage of the nation s social security net, increase representation from the rural population and take other measures to spread the wealth more evenly

We are still facing many unfair problems in fields such as income distribution and the judicial sector. The problems demand more attention from us, Wen said, pledging more attention to the poor and disadvantaged groups because they account for the majority of society.

The premier said that the nation s development should not only promote economic growth, but also pursue a fair society and justice to ensure every individual s all-round development in a free environment.

Wen reiterated that China will stick with a stable yuan amid increasing pressure from trading partners to allow the currency to appreciate, citing a decline in surplus last year by $102 billion, and the stability of the renminbi in helping the world recover from economic crisis.

US President Barack Obama last week called on China to adopt a market-oriented exchange rate policy.

The value of the Chinese currency has become a major issue in relations between China and the United States, which are also strained over Tibet, Taiwan and Internet freedom.

Wen rejected the call, and said the currency's value was not to blame for foreign trade deficits.

A country s exchange rate policy and its exchange rates should be decided by its national economic situation, Wen said, adding that foreign pressures will not help the currency reform.

The premier said he was not even invited to a key meeting he was accused of skipping at a United Nations climate summit last year in Copenhagen.

The summit ended with the Copenhagen accord, allegedly far looser than a legally binding treaty it was previously meant to produce. China was singled out for blame in the finger pointing that followed.

We haven t received any explanation until now. It s still a mystery to me, Wen said.

Wen said he only learned the meeting would be held later in the evening from a European country leader, at a banquet hosted by the Danish Queen. I was shocked as I had received no notification that China was invited, he said.

A new treaty to replace the Kyoto Protocol is expected to be approved by negotiators who will attend another round of climate talks later this year in Mexico.