(chinadaily.com.cn)
Updated: 2008-03-18 16:14

Beijing is very much worried about the potential global economic fallout from the US subprime crisis and expanding financial woes, which could make China's job of balancing growth and fighting inflation more difficult, Premier Wen Jiabao said on Tuesday in Beijing.

Chinese Premier Wen Jiabao (C) answers a question as Vice-premier Li Keqiang (L) listens during a press conference at the Great Hall of the People in Beijing, following the conclusion of the First Session of the 11th National People's Congress on March 18, 2008. [Xinhua]

"We need to blaze a trail in between (curbing inflation and nurturing economic growth)," Wen said after the conclusion of the first session of the 11th National People's Congress, the parliament. Wen was reappointed China's primer minister on Sunday, after his administration attained an eye-catching annual double-digit GDP growth for China in his first term.

However, the Chinese premier admitted that it would be challenging to control inflation this year to within the projected 4.8 percent target. China's inflation ran as high as 8.7 per cent in February, partially because the severe snow storms seen in five decades battered south China and handicapped food supplies.

Wen's administration has set "two prevents" when mapping out this year's economic policies: to prevent the fast-growing economy from being overheated, and keep structural price rises from turning into significant inflation.

Facing a big squad of press corps at the Great Hall of the People in Beijing, Wen noted the worsening conditions brought about by the US subprime debacle, which has spawned a free fall in the value of the US dollar, slammed stock markets worldwide and fed into a surge in oil prices.

"I am closely watching and feel deeply worried about the global economic situation, especially the US economy," Wen said. "What concerns me is the continuous depreciation of the US dollar and when the dollar will hit bottom."

The greenback is trading near 13-year lows against the Japanese yen and record lows against the euro, after the US Federal Reserve has repeatedly cut interest rates, and after it took the rare step of cutting its discount rate on Sunday.

Wen said that Beijing would have to take the changing economic landscape into account when deciding on further policy steps, despite its having switched to a tight monetary policy at the end of last year to curb excessive growth in investment and credit.

While many other countries are facing a credit crunch in the wake of the collapse of the subprime mortgage market, China is struggling to contain a surge in liquidity.

Zhou Xiaochuan, governor of the People's Bank of China, the central bank, reportedly talked to Chinese media at the end of the NPC session Monday that the central monetary policy commission is gauging the possibility of another interest rate rise, or other tightening measures to rein in inflation.

A journalist raises a question to Premier Wen Jiabao at a press conference after the closing ceremony of the First Session of the 11th National People's Congress (NPC) at the Great Hall of the People in Beijing, capital of China, March 18, 2008. The annual NPC session closed on Tuesday. [Xinhua]

Wen warned against slamming on the brakes too hard, because an abrupt slowdown in output would complicate Beijing's efforts to create 10 million new jobs a year.

He did not specify what role the yuan could play in fighting inflation, but noted that it had strengthened by about 15 percent against the greenback over the past two years. The pace e pace of the yuan appreciation has accelerated lately, as the greenback tumbled against major world hard currencies.

The yuan was trading at 7.0853 per dollar on Tuesday. Some economists say it needs to strengthen significantly more to help fend off inflows of cash or hot money and hence fight domestic inflation.

Reform Breakthroughs

Wen also said that the Chinese government needs the courage and determination to further "free people's mind" in order to make new breakthroughs in the reforms of its economic and political systems.

He said it is imperative for his government to strengthen social justice and equity, which means to respect everyone, protect the lawful rights and interests of all, and ensure everyone enjoys equal opportunities for development.

"If the development of economy and improvement of the people's livelihood are the bounding duties of the government, then the promotion of social justice and equity is the conscience of the government."

The premier also stressed cultural advancement and higher ethical standards in China, including higher credibility, integrity, tolerance, fraternity and morality.