Thursday, March 6, 2008

BEIJING (AP) — China’s prime minister yesterday 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 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 tension 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,” Mr. 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 2½-hour state-of-the-nation speech, Mr. 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,” Mr. 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.

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, Mr. 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-deceased party power-broker.

Mr. 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 Mr. Hu, anointing him a vice president, a position Mr. Hu formerly held.

Meanwhile, Mr. Hu’s protege, Li Keqiang, is expected to be named a vice prime minister, putting him in the firing line on fighting inflation.

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.

Policy watchers worry inflation may create social unrest as political leaders quibble. Discontent over soaring food costs fueled the Tiananmen democracy protests that nearly toppled the party in 1989.

Mr. Wen, who was a senior party official in 1989, yesterday called for extending price controls on food and basic goods and for curbing investment to tamp down the demand that is driving prices higher. He also promised subsidies to encourage farmers to grow more food and protect the poor and pensioners.

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