China targets 4% CPI rise, price stability top priority

BEIJING - China will make stabilizing consumer prices a top priority this year and contain inflation increase at around 4 percent, Premier Wen Jiabao said Saturday during the parliament's annual session.

The target, topping last year's 3-percent aim, is 0.7 percentage points higher than the actual inflation growth rate reported in 2010.

"Recently, prices have risen fairly quickly and inflation expectations have increased. This problem concerns the people's wellbeing, bears on overall interests and affects social stability. We must therefore make it our top priority in macroeconomic control to keep overall price levels stable," Wen said at the opening of the fourth session of the 11th National People's Congress (NPC), China's top legislature.

In Wen's government work report, taming inflation and keeping the overall level of prices stable top the agenda of the government this year, followed by further boosting domestic demand, and strengthening the position of agriculture as the foundation of the economy.

The move signalled the government's increasing concern about rapid price rises and its determination to solve the problem among "issues that the masses feel strongly about".

The premier vowed the government will not allow price rises to affect the normal lives of low-income people.

China's January inflation remained stubbornly high at 4.9 percent despite a series of measures taken to cap price rises. The growth accelerated from 4.6 percent in December but was lower than the 28-month high of 5.1 percent in November.

However, price pressure is still mounting. Food price, which makes up about one third of the basket of goods used to calculate China's consumer price index (CPI), surged 10.3 percent in January.

To make the situation worse, higher grain prices after adverse weather conditions worldwide, rising oil prices, regional political tensions and turmoil and the quantitative easing policies of the United States will all add price pressures in China.

Zhang Xiaoji, a senior researcher with the Development Research Center of the State Council, forecast China's full-year inflation would be capped under 5 percent this year on the precondition that the world's commodity prices would not continue the steep rise.

Mo Xiaosha, a researcher at the Guangxi Academy of Social Sciences, said although consumer prices were likely to further pick up in the coming five years, the government would not lose control thanks to its policy package.

Seeking to reassure public confidence, Wen said the country has oversupply in major industrial products, ample grain reserves and abundant foreign exchange reserves, which the government will "make the most of" in its fight against inflation.

The government's policy tool-knit will include liquidity management, production boosts and intensified crackdown on price speculations and hoarders.

The premier reaffirmed that China will continue to implement a proactive fiscal policy and prudent monetary policy in 2011.

Wen said the government plans a 16-percent increase in the broad money supply (M2) this year, down from last year's 17-percent target and the actual increase of 19.7 percent.

However, his government work report did not mention this year's annual quota for the new loans, which was included in both 2009 and 2010 reports.

To mop up the excess cash in the economy that helped fuel inflation, China's central bank has raised the reserve requirement ratio for commercial banks eight times since the start of last year and hiked the benchmark interest rates three times.

"Given the lack of generalized overheating, plus tighter credit conditions, we expect the year-on-year inflation to top up in May, with CPI peaking above 6 percent. It will drop back to 3-4 percent in the second half of the year," Li Wei, a Shanghai-based economist with Standard Chartered Bank, said in an email report to Xinhua.

The tightening measures would inevitably lead to deceleration in economic growth, which Li expected would slow to 8.5 percent this year after 2010's 10.3-percent increase.

China sets its full-year growth target at 8 percent this year, Wen said, warning that the country still faces "an extremely complex situation for development".

To achieve the inflation and economic growth targets, China has to "strike a balance between maintaining steady yet rapid economic development, restructuring the economy and managing inflation expectations," Wen said.

The government also swears "resolute" curbs on excessive home price gains, intensified efforts to narrow income gaps and clampdown on corruption.

source:Xinhua