China promises strong growth in 'crucial year'

[March 05, 2010]  BEIJING (AP) -- China's Premier Wen Jiabao promised strong growth this year and said the government will combat inflation and risks to banks to keep the rebound in the world's third-largest economy on track.

In an annual report to China's legislature, Wen announced a growth target Friday of 8 percent in a "crucial year" for recovery. He said stimulus spending and easy credit will continue because the basis of renewed global growth is still weak.

Beijing will keep its currency "basically stable," Wen said, giving no sign whether it might ease exchange-rate controls that Washington and other trading partners say keep China's yuan undervalued, swelling its trade surplus.

Wen said the government will take steps to control inflation and other problems fueled by the 4 trillion yuan ($586 billion) stimulus and a flood of bank lending that helped China rebound quickly from the global downturn.

"This is a crucial year for continuing to deal with the global financial crisis, maintaining steady and rapid economic development and accelerating the transformation of the pattern of economic development," the premier said in a nationally televised speech at Beijing's Great Hall of the People.

Any hiccup in China's recovery could have global repercussions if it erodes the country's demand for U.S. and European factory equipment or imported iron ore and other raw materials from Australia, Brazil and other countries.

The government has announced an 8 percent growth target annually in recent years and usually exceeds it. Last year's growth was 8.7 percent.

The government hopes to create 9 million new jobs while holding this year's inflation rate to 3 percent, Wen said. He said total central and local government spending is forecast at 8.5 trillion yuan ($1.2 trillion), with a 1 trillion yuan ($145 billion) deficit.

Wen promised more steps to boost domestic consumer spending and the creation of high-tech industry to reduce reliance on exports and investment to drive growth. He said the government will do more to develop China's growing clean energy industries.

"We urgently need to transform the pattern of economic development," he said.

In a separate report, the Cabinet's planning agency promised to open more areas of the economy to foreign investors and said it would guide them to high-tech fields, clean energy and environmental protection. It said China hopes to attract $96 billion in foreign direct investment this year.

Wen warned that "risks in the banking and public finance sectors are increasing," though he gave no details. He promised to strengthen risk management and make regulatory oversight of financial industries more effective.

China's banks are flush with cash and avoided the mortgage turmoil that battered Western lenders. But regulators worry that lending standards were relaxed as bankers complied with orders to support the stimulus and too much money went to unneeded factories and other assets, possibly leading to a wave of loan defaults later.

The government has ordered banks to set aside more reserves in a step to keep lending stable but has avoided raising interest rates, which might slow growth.

Wen promised to "resolutely curb" a surge in politically sensitive housing costs, which accelerated in January, rising by 9.5 percent from a year earlier in 70 cities. He promised more spending to build low-income housing.

Communist leaders worry that a surge in inflation and housing costs could erode the public's gains from economic reforms, possibly fueling social tensions and frustration about corruption and official abuses.

He repeated the government's earlier announcement that it will scale back total lending by China's banks to 7.5 trillion yuan ($1.1 trillion) this year. Lenders handed out some 9.5 trillion yuan ($1.4 trillion) last year. Nevertheless, Wen said this year's limit is still "moderately easy" and should meet reasonable credit needs.

Beijing faces rising pressure from Washington and other trading partners to ease its currency controls, an issue that governments set aside as they collaborated to revive global growth. President Barack Obama vowed last month to press for the elimination of currency systems that depress export prices and hurt American companies.

The issue is especially sensitive at a time when other countries are trying to boost trade to recover from the global economic crisis.

The yuan's value was tied to the dollar for decades. Beijing broke that link in 2005 and allowed the currency to rise by about 20 percent through late 2008. It halted that rise after the global crisis hit to help Chinese exporters compete abroad.

A group of U.S. manufacturers and labor unions, the Fair Currency Coalition, is calling on Congress to declare China's currency controls an illegal subsidy and impose sanctions if they are not ended.

"China's subsidy-induced price advantage fuels that country's trade surpluses and undercuts America's economic recovery," the group said in a Feb. 24 statement.

[Associated Press; By JOE McDONALD]

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