Beijing makes inflation fight top priority

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Wen Jiabao, the Chinese premier, put tackling inflation at the top of the policy agenda on Sunday and suggested that the survival of Communist party rule might depend upon it.

Mr Wen insisted that inflation must be managed while maintaining rapid economic growth and carrying out state-led economic restructuring, a goal that he conceded would be “extremely difficult”.

Many Chinese officials and experts believe double-digit inflation was a leading cause of the public discontent that spilled over into student-led protests in the spring of 1989 and ended in a bloody military crackdown centred on Beijing’s Tiananmen Square. At the time, Mr Wen was a mid-ranking official in the central government.

“If there is inflation plus unfair income distribution and corruption, it will be strong enough to affect our social stability and even affect the stability of state power,” Mr Wen said in his annual press conference at the close of the national people’s congress, China’s rubber stamp parliament.

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“It will be an extremely difficult task for us to promote steady and fast economic growth, adjust our economic structure and manage inflation expectations all at the same time, but it is imperative for us to accomplish these three tasks.”

The gap between rural and urban incomes was larger last year than at any time since 1978 when the government started keeping credible statistics. Meanwhile, official corruption is rampant throughout the Communist party and bureaucracy.

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Zhou Xiaochuan, central bank governor, yesterday said consumer inflation rose slightly more in February than the government had expected. He gave no indication of a policy response. Consumer inflation of 2.7 per cent in the year to February accelerated from 1.5 per cent in the year to January. This was still below the target 3 per cent ceiling announced by the government this month.

Mr Wen said other countries faced the prospect of inflation, which he said was a big factor contributing to the risk of a double-dip global recession. “As a result of inflation expectations, some countries are facing difficulties in making the right policy decisions,” Mr Wen said. “Should we encounter setbacks [in China’s economic recovery] much is at stake and the cost will be too high.”