Inflationary pressures fueled by rapidly rising consumer prices and a global economic downturn triggered by the U.S. subprime crisis are presenting China with its most difficult fiscal challenge ever.
That’s according to Premier Wen Jiabao, speaking to journalists following the initial session of the country’s National People's Congress.
"I am afraid that this year could be the most difficult year for the Chinese economy,” Wen said. "It is difficult because of the uncertainties both inside and outside the country.”
"What I'm worried about is that the U.S. dollar continues to depreciate,” he said.
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"When will we see it hit the bottom? What kind of monetary policy will the U.S. take and, what direction will its economy take?”
The Chinese premier pledged that his government will simultaneously try to create jobs through economic growth while battling inflation — twin goals that in most cases cannot co-exist.
"We need to blaze a trail in between,” Wen said. "I am deeply aware that this is a big challenge to China, but I can tell everyone that China's economy is fundamentally sound.”
Noting that the Chinese yuan had appreciated 15 percent against the U.S. dollar, Wen said that further adjustments to China's interest rate and foreign exchange rate would only come once the potential benefits and harms of such moves were fully understood.
Following his remarks, China's central bank announced it would raise its bank reserve ratio a half percentage point to 15.5 percent on March 25.
China’s consumer inflation index averaged 4.8 percent last year, well above the government's three percent target, principally because of large increases in the cost of food and housing in an economy that grew 11.4 percent.
Prices last month climbed to near a 12-year monthly high of 8.7 percent.
"China is a developing nation of 1.3 billion people, so we must maintain a certain speed of economic development to resolve the employment pressures,” Wen observed.
"To obtain these goals we need to address the problems of unstable, uncoordinated and unsustainable economic development.”
Acknowledging difficulties caused by severe blizzards during the first two months of the year, Wen promised his government will keep inflation at less than 4.8 percent this year, during which time the economy is expected to expand by a slower, although still torrid, 8 percent.
He also noted the Chinese government needs to make new breakthroughs reforming the economic and political systems and to strengthen social justice and equity.
"If the development of economy and improvement of the people's livelihood are the bounding duties of the government, then the promotion of social justice and equity is the conscience of the government,” the premier said.
Wen emphasized the need for cultural advancement and higher ethical standards in China, including higher credibility, integrity, tolerance, fraternity and morality.
He promised to dedicate himself to building "a society of equity and justice to ensure the people live a happy life, our children can go to school and our nation is duly respected in the international community.”
© NewsMax 2008. All rights reserved.
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