China cuts growth target to 8-year low, to boost consumption

Mon Mar 5, 2012 3:17am EST
 
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By Zhou Xin and Kevin Yao

BEIJING (Reuters) - Chinese Premier Wen Jiabao cut his nation's 2012 growth target to an eight-year low of 7.5 percent and made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

He lowered the target from a longstanding annual goal of 8 percent, a move investors anticipated so that Beijing has some economic leeway to rebalance the economy and defuse price pressures in the run up to a leadership change later this year.

Lower growth will allow Beijing to reform key price controls without causing an inflation spike, so monetary policy can stay broadly expansionary to ensure a steady flow of credit to the small and medium-sized firms the government wants to encourage.

"We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach," Wen said in his annual work report to the National People's Congress (NPC), China's annual parliamentary session.

The premier named "expanding consumer demand" as his first priority for 2012, when the ruling Communist Party must also navigate a leadership handover that will send Wen and President Hu Jintao into retirement in 2013.

"We will improve policies that encourage consumption," Wen told nearly 3,000 delegates of the Communist Party-controlled legislature, gathered under the harsh lights and high ceilings of the Great Hall of the People.

"We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people's ability to consume," said Wen.

His annual state-of-the-nation report to parliament dwelled on the institutional and income barriers the government must break to build a more balanced economy that relies less on exports and shares more wealth with hundreds of millions of poor farmers and migrant workers who are reluctant to spend.   Continued...

 
China's President Hu Jintao (front R) and Premier Wen Jiabao (front L) clap as they attend the opening ceremony of the Chinese People's Political Consultative Conference (CPPCC) at the Great Hall of the People in Beijing March 3, 2012. REUTERS/Jason Lee