China calls for boost in domestic consumption

CHRISTOPHER BODEEN
View photos
Chinese Premier Wen Jiabao, right, walks near Chinese President Hu Jintao on his way to deliver the opening speech during the opening session of the National People's Congress in Beijing's Great Hall of the People, China, Monday, March 5, 2012.(AP Photo/ Vincent Thian)

BEIJING (AP) — China's premier on Monday called for a boost in domestic consumption to keep the economy expanding while overseas markets remain weak, and pledged greater support for social security, employment and public housing to help those left behind by the nation's economic boom.

Premier Wen Jiabao's comments to open the annual National People's Congress highlight government efforts to shift to economic growth based on consumer spending and technology-based industries and reduce reliance on exports and low-cost labor. Outside analysts say such a shift is essential to keep China's economy growing and raise incomes.

Wen announced that the government planned growth of 7.5 percent this year — a target below previous goals. The government wants a slightly slower pace of growth as it tries to rebalance the world's second-largest economy.

"China's economy is encountering new problems. There is downward pressure on economic growth. Prices remain high. Regulation of the real estate market is at a crucial stage," Wen said.

Boosting domestic consumption is crucial to China's future, Wen said. He promised increased spending on health care and social services to free up disposable income, along with higher wages for middle- and low-income earners. He said the government would support more paid vacation, expanded consumer credit and greater buying options to help people spend more.

Subsidies for agriculture also would be boosted. Just under 50 percent of China's 1.3 billion people live in rural areas that are dependent on agriculture. More tuition assistance would be provided for rural students.

"Expanding domestic demand, particularly consumer demand, which is essential to ensuring China's long-term, steady, and robust economic development, is the focus of our economic work this year," Wen said.

China has produced three decades of rapid growth primarily through exports, but the sluggish world economy and rising wages within China raise questions about how long that can continue. World Bank president Robert Zoellick said last week that the economic strategy is unsustainable. The bank issued a report with a Chinese Cabinet think tank that called for more free-market reforms.

Wen's one-hour-and-50-minute report outlining priorities for 2012 was China's "state of the nation" address and opened 10 days of meetings for nearly 3,000 delegates in the Great Hall of the People in central Beijing.

The meeting comes amid not only economic concerns but a challenging leadership transition. The congress is expected to be the scene of behind-the-scenes political bargaining as President Hu Jintao and the most senior Communist Party leaders begin stepping aside this fall — after a decade in power — to make way for a younger generation.

The United States' efforts to expand its influence in Beijing's Asia-Pacific backyard also have China's attention. The country announced a defense spending boost Sunday of 11.2 percent to 670.2 billion yuan ($106.4 billion) in 2012, an increase of about 67 billion yuan. Only the United States spends more on defense.

China's economy grew by 9.2 percent last year, down from 10.3 percent in 2010, and many local governments are wracked with debt. In addition, with Europe in crisis and the U.S. recovery fragile, demand for Chinese exports is weakening.

"I wish to stress that in setting a slightly lower GDP growth rate, we hope ... to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient," Wen said.

Inflation, especially rising food prices, was a major concern last year, but the government estimates it will hold at around 4 percent this year, while officially registered urban unemployment will remain at around 4.6 percent and total volume of imports and exports should rise by about 10 percent.

Wen said China was targeting an increase of central and local government spending of 14.1 percent over last year, totaling 12.4 trillion yuan ($1.97 trillion), of which slightly more than half would be central government spending.

Social security and employment and affordable housing received the largest spending increases — 21.9 percent and 23.1 percent respectively.

Wen said that industrialization, urbanization and agricultural modernization will help "create huge potential demand."

He said China will target government waste by imposing limits on official overseas trips and official vehicles, both huge drains on local government budgets. In addition, leading officials will be prohibited from interfering in economic activities such as government procurement, awarding government contracts and the optioning of land and mineral rights. Government land grabs are the cause of tens of thousands of protests every year in China.

Wen alluded to the ethnic protests and violence China has been wracked with in recent years, especially in Tibetan areas and the far west Xinjiang region.

"China is a unified multiethnic country," he said. "Only when its ethnic groups are united as one and work for the development of all can China achieve prosperity."

With unrest on the rise and protests occurring at an estimated rate of 500 per day, the central government's budget for public security rose 7.7 percent to 182 billion yuan ($29 billion). Including local government inputs, total spending on police, courts, and the vast domestic intelligence apparatus soared past the defense budget last year.

And despite criticisms over China's support for Syria and other outcast regimes, Wen said China's diplomacy would remain proactive and "make greater contributions to global economic growth and world peace and stability."