Beijing (AsiaNews/Agencies) – In his New Year's Day address President Hu Jintao yesterday said that China was facing "unprecedented opportunities as well as challenges" in 2008. Rhetoric aside, analysts agree that 2008 will be a landmark year for the mainland.

The president noted that the coming year will mark the 35th anniversary of its "open-door" reforms, and that it will be faithfully following the development strategy formulated at the Communist Party's 17th National Congress (where he was voted in for another five years as the country’s top leader) to improve productivity whilst maintaining social stability.

Hu said that the government wants lower inflation, stable food prices, cuts in rising housing prices to help low-income families and better health care benefits.

Experts agree that economic growth will continue but that important changes are needed.

Economy. Last year's growth is expected to reach 11.5 per cent but year-on-year inflation reached 6.9 per cent in November. The main factor in the rise was an 18.2 per cent increase in food prices, led by a 56 per cent surge in the cost of pork and a 38.8 per cent rise in overall meat and poultry prices. but in stores actual prices are often higher than official ones. For this reason economists expect the government to rein in growth to between 10 and 11 per cent.

However, the Chinese Academy of Social Sciences (CASS), the government's top think-tank, said in its annual report that the “[e]xcess liquidity and the negative real interest rate [can] easily give rise to risky asset bubbles.” Hence most economists expect the central bank to continue its tight monetary policy, further raising interest rates and the amount lenders must keep as reserves even though these measures have not been sufficient so far.

Yuan. Similarly, a quicker rate of currency appreciation seems in the cards for this year as Beijing takes a tougher line on slowing capital inflows generated by export earnings. Excess liquidity and rising inflation mean there is now considerable pressure at home to let the yuan rise, which gained 3.3 per cent over the dollar in 2006 and 7 per cent last year, including 0.9 per cent just in the last week of 2007.

Whilst Goldman Sachs forecasts a 10 per cent rise against the US dollar, Citi predicts a gain of 7.5 per cent this year and 10 per cent next year.

A stronger yuan would help trim the trade surplus by making exports more expensive and imports cheaper stimulating growth in the domestic market and lower prices.

But many like Trade Minister Chen Deming fear that a stronger yuan might wipe out exporters with small profit margins. Conversely, many economists believe that mainland exports would only become marginally less competitive in US and European markets.

Taxations. A new Unified Enterprise Income Tax law, which came into effect yesterday, will see the general corporate income tax rate reduced from 33 per cent to 25 per cent. The big winners will be mainland companies that used to pay the full whack, particularly state-owned companies that were not entitled to tax exemptions. The big losers will be foreign export manufacturers, which benefited from preferential tax breaks that typically reduced their tax liability to 15 per cent. The government also wants a fuel tax to encourage energy conservation but has had to put if off to avoid stoking inflation.

Financial services. For years foreign investors have waited to see Beijing open its banking and financial services. So far more flexibility is anticipated to revise the cap on foreign investment in commercial banks from the current maximum 20 per cent stake for a single overseas investor and 25 per cent stake for combined investments. The authorities still fear a takeover of the financial sector by foreign banks.

Even though the issue was discussed at the third economic dialogue between top mainland and US officials in December not much change is expected; at best foreign interests might gain greater access to Chinese banks but their control will be kept under 50 per cent of capital.

Stock market. It is the most volatile sector. Chinese bourses grew considerably in 2007 but remain fragile and prone to major and sudden drops.

Energy. With inflation, energy is Beijing’s main challenge as it tries to reconcile the needs of the economy and the environment. The mainland relies to the tune of 70 per cent on coal and will continue doing so for the next 10 to 15 years. The mainland's crude oil import dependency ratio is forecast to grow to 49.3 per cent this year from 46.5 per cent last year. Still Beijing has ambitious plans to expand the development of nuclear, wind, solar and other renewable energy sources but will not be able to do much on the short run.

For experts the Beijing Olympics are still far off, incidental to current problems.