Beijing (AsiaNews/Agencies) – Annual inflation rose to 8.5 per cent from 8.3 per cent in March, driven by food prices (+22.1 per cent in April over a year before), despite government efforts at containing it. High inflation is widening the socioeconomic gap and increasing the risk of social unrest.

China's economic growth expanded “only” 10.6 per cent in the first quarter of this year over last, down from the 11.9 per cent pace for all of 2007.

For the National Bureau of Statistics, “Greater prominence needs to be given to curbing inflation and controlling price rises”. But high interest rates and a yuan that continues to be undervalued tend to draw foreign investments which are pushing inflation up.

At the same China’s foreign investments are up. The mainland's investments overseas totalled US$ 19.3 billion in the first quarter of 2008, exceeding the country's total investments overseas for the whole of last year (US$18.76 billion), this according to China’s Vice Minister of Commerce Chen Jian. They were only US$2.5 billion in 2002.

The president of the Hong Kong Institute of Certified Public Accountants, Albert Au, said mainland foreign investments reflected Beijing's preference for firms to invest abroad rather than expand domestically since this would worsen the inflation problem that policymakers are tackling.

The US subprime problem has also led many financial institutions to seek new investors, and this is going to increase.

However, many experts are concerned that this will widen the gap between the few rich, who can protect their capital from domestic inflation, and the hundreds of millions of poor who can barely survive.

In fact higher prices especially affect food prices. In turn this is leading to higher wage demands, which the government has resisted so far fearing an inflationary chain reaction.

Beijing is especially concerned about widespread unrest in this Olympic year.