03/06/2008, 00.00
CHINA
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Wen Jiabao’s problems: inflation, domestic poverty and world recession

In his speech to the National People’s Congress, PM pledges help education and farmers as well as action against inflation. His words express an underlying fear of social unrest, especially of a world economic crisis.
Beijing (AsiaNews/Agencies) – China’s government is worried about a possible worldwide recession and domestic inflation. For this reason it wants to help the poor and migrants, the groups most likely to suffer from the problems, by improving their access to health care and education.
In a two and half hour speech in the opening session of the annual National People’s Congress Prime Minister Wen Jiabao said that his government would try to keep inflation at 4.8 per cent, down from the current 7.1 per cent which is disproportionately affecting food prices, some of which have risen by as much as 70 per cent. A tight monetary policy and prudent fiscal policy should bring inflation under control whilst maintaining the target of 8 per cent economic growth.
Wen is concerned that inflation might cause social unrest among the poorest social groups. “Only by appropriately spreading the fruits of economic development among the people can we win their support and maintain social harmony and stability,” Mr Wen said.
The central budget for education will also increase by 45 per cent to 156 billion yuan this year (US$ 24 billion). This will bring education spending just under 4 per cent of the GDP, a rate considered the internationally accepted threshold for a developing country but too low for a rich country like China.
Because of low salaries and widespread poverty education is still expensive and about 80 per cent of rural students have to leave school because their families cannot afford books, stationary and school fees.
Some members of the Chinese Academy of Social Sciences said that this year most funding in education will go to the cities, home to 20 per cent of the population whilst farmers will only get the leftovers.
The same applies to the field of health care where the delivery of services has improved in the cities but is becoming increasingly obsolete in rural areas.
In his address Premier Wen Jiabao also focused on the increasing external challenges that a global slowdown would bring to the mainland.
“China,” he said, “is now at a critical period in its reform and development, and we must be fully prepared for changes in the international [economic] environment and become better able to defuse risks. [. . .] Uncertainties in the international environment and potential risks have increased.”
Mr Wen said fresh challenges to the mainland's development and increased risks were coming from the deepening US subprime crisis, the continued depreciation of the US dollar, increasing risk in the international financial market, and the soaring prices of petroleum and other commodities. “All this could adversely affect China's economic development.”
Although the US credit crunch has not yet directly affect Chinese financial markets it could make itself felt indirectly. China’s economic boom is in fact export-driven and the United States is China’s second major trading partner after the European Union. If the US credit crisis triggers a drop in exports to the United States, China’s largest overseas markets, Chinese manufacturers would feel the pinch and this might ricochet on China’s own financial system.
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