National People’s Congress: focus is on fighting inflation

Premier Wen Jia-Bao, according to convention, opened the National People’s Congress with his annual work report. With his report, it is clear that China is still very focused on containing inflation and preventing overheating of the economy. Last December, during its Central Economic Work Conference, China moved its monetary policy stance from “prudent” to “tight”, as discussed in this Red Cat Journal article. And Premier Wen indicated that China would maintain a “tight” monetary policy to hold inflation for 2008 to 4.8%, the same level as last year. As the inflation forecast is higher than the 3% forecast at the beginning of last year, Premier Wen is acknowledging that inflation is likely to remain at a higher level throughout this year. As for economic growth, Premier Wen indicated a target of 8%, down from the actual 11.4% registered last year.

As for fiscal spending, the annual budget report presented at the National People’s Congress indicates growth in central government spending of 17% to RMB 3.4 trillion (almost US$500 billion). Social welfare spending will see double-digit increases with welfare up 19.8%, health care spending up 25% and education spending up 45%. The budget deficit, at RMB 180 billion (around US$25 billion), is expected to show a slight decline from RMB 200 billion last year.

Overall, Hong Kong and Chinese stock markets have weakened over the past week, indicating that nothing out of the National People’s Congress was seen as especially positive for the stock markets. Investors may have been disappointed that there were no signs that monetary policy might be loosened. Also, the GDP growth target of 8% is likely at the lower end of third-party forecasts by outside economists.