Sun, Mar 07, 2004 page11

• Beijing pledges to limit growth to 7%

  PLAYING CATCH-UP With a widening wealth gap between wealthy urbanites and the 800 million rural poor in China, the communist leadership is trying to stay in control

  • REUTERS
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  China, charting a course of more modest economic growth and mild inflation, yesterday forecast a US$38.6 billion budget deficit this year as it shifts resources to help an impoverished countryside catch up with wealthier cities.

  China's development chief, Ma Kai, told the National People's Congress he aimed to keep the world's sixth-biggest economy from being roiled by "big ups and downs."

  Ma, who heads the State Development and Reform Commission, a powerful ministry in charge of steering China's breakneck economy, targeted economic growth of around 7 percent last year, a more modest pace than the 9.1 percent pace last year.

  There was no hint that China would move soon to revalue its fixed currency, a source of friction with large trade partners like the US who say it gives China an unfair trade advantage.

  In laying out the annual budget, Finance Minister Jin Renqing said spending would rise 7 percent and that stimulus bonds once used for public works would be used to boost healthcare, education and other services in the vast countryside.

  The rural aid was welcomed with open relief by some of the nearly 3,000 delegates attending the 10-day congress, such as Lin Dongchi, a teacher from China's impoverished southern region of Guangxi.

  "We really need this money," Lin, her voice cracking with emotion, said after Jin delivered his speech in the cavernous Great Hall of the People bordering Tiananmen Square.

  China, which has issued special bonds every year since the 1997 Asian financial crisis, planned to issue 110 billion yuan worth this year, down 20 percent from last year, Jin said.

  The ruling Communist Party fears that a widening wealth gap caused as cities and coastal areas race ahead of the backward hinterland could undermine its authority over the country's 1.3 billion people.

  "The government is now stressing a balance between growth and social development. The countryside has developed more slowly and they need more subsidies," said Xie Weihe, a Beijing professor who is a member of an advisory body to parliament.

  This year's congress has kicked off with a string of officials signalling an easing of an economy that has quickly become a source of global fascination as it suctions up materials and spews out cheap exports.

  Premier Wen Jiabao on Friday vowed to cool off the economy and help hundreds of millions of farmers who are angry at stagnant living standards, corruption and lack of basic services.

  But the airing of grievances in China goes only so far.

  Plainclothes police dragged one man away from the hall's east gate yesterday after he tried to unveil a placard. It was unclear what he was protesting against, but petitioners from around China come to the capital each year to air grievances.

  Jin predicted government expenditure of 2.68 trillion yuan, up 7 percent from last year. That would be nearly 320 billion yuan more than expected revenue, but also mark the first time in several years the deficit has not widened.

  "Currently there is a certain uncertainty in global economic development, and the foundation for the sustained development of China's economy is not too stable," Jin said, explaining more deficit spending by the world's fastest-growing major economy.

  To help fund this year's budget shortfall and repay old debt, Jin outlined plans to issue 702 billion yuan in treasury bonds this year, about 14 percent more than last year's planned issue of 615 billion yuan.

  Ma's outline highlighted the peculiarities of China, where torrid economic growth sits alongside rising unemployment.

  Ma said he expected joblessness to rise this year, to 4.7 percent from 4.3 percent last year. Millions in China have been thrown out of work each year as inefficient state companies shed excess workers.

  Ma said China aims to check inflation at three percent and cap money supply growth at around 17 percent, a move meant to staunch a flood of money that helped push annual inflation to 3.2 percent in January, the highest level in nearly seven years.

  Outlining other economic targets, Ma said China would work to "perfect the exchange rate mechanism" of the yuan while keeping the currency -- pegged at about 8.28 yuan to the US dollar -- basically stable.

  Total foreign trade was targeted for an 8 percent rise, Ma said without detailing exports and imports. Last year, China's exports jumped nearly 35 percent. Imports soared almost 40 percent.
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