China to speed up economic reform to cushion risks: Wen

BEIJING (Reuters) - China will speed up economic reforms and let its currency float more freely in a bid to make growth more sustainable and cushion the country against external pressures and property market risks, Premier Wen Jiabao said on Wednesday.

Wen said China's decision to cut its economic growth target to 7.5 percent for 2012 from the 8 percent eyed in each of the previous eight years was necessary to help transform the economy, and create more widespread wealth while keeping inflation under control.

"Due to the European debt crisis and a shrinking external market, there are downward pressures on the Chinese economy. Under such circumstances, we lowered the growth rate target mainly to allow for structural adjustment," the 69-year old Wen told reporters at the end of the annual parliament session punctuated by signs of a slowing economy.

"We will step-up exchange rate reforms, especially in increasing two-way fluctuations."

Trading in Hong Kong's non-deliverable forwards market showed two-way fluctuations in expectations of the yuan's value, signaling that the yuan "is possibly near an equilibrium level", added Wen.

Wen said reforms to China's political system are needed to address the country's economic problems, but they had to be gradual and orderly. He said social and legal injustice were causing discontent in Chinese society.

He also said China's home prices remained far from falling to a reasonable level, and efforts to curb real estate speculation must be maintained or risk chaos and a property bubble which would harm the economy if it burst.

"If we relaxed, all we have achieved would lost and it would cause chaos in the property market, which is bad for the long-term, healthy and stable development of the housing market," Wen said, adding that reasonable housing prices should reflect personal income, investment and reasonable profits.

ECONOMIC HEADWINDS

Wen retires next year along with President Hu Jintao, and recent data suggest the economic headwinds they face at home and abroad in their final year in power will complicate the ruling Communist Party's focus on maintaining stability.

At the opening of the meeting last week, Wen cut China's annual economic growth target in part to create some leeway to rebalance the economy and defuse price pressures in the run up to the leadership transition that begins 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.

Inflation hit a three-year high of 6.5 percent in July and was above the government's 4 percent target in every month of 2011. Wen has maintained the target for this year and consumer prices are up an average of 3.9 percent on year-ago levels in the first two months of 2012.

The growth and inflation trade-off is particularly pointed as most of China's 1.3 billion people are poor, its 800 million workers are mainly low paid and an estimated 10 percent of the population live on less than $1 per day. They feel the pinch of rising prices, especially for food, acutely.

TRADE, ECONOMY SLOWING

Meanwhile foreign demand for goods from China's vast factory sector has suffered as its two biggest markets, the European Union and the United States, struggle to overcome a festering debt crisis and sluggish consumer spending, respectively.

Data released at the weekend showed that China's trade balance plunged $31.5 billion into the red in February, the largest deficit in at least a decade.

About 200 million jobs in China are directly dependent upon overseas demand or foreign-funded investments.

The trade data followed reports on Friday that inflation eased in February while bank lending, retail sales and industrial output growth all cooled more than expected, pointing to slowing of the world's second-biggest economy but not a hard landing.

Economists widely expect 2012 to deliver the slowest full year of growth in the decade that Wen and Hu have been in power.

China's party-run parliament is a regimented show of unity for acclaiming policies, rather than debating them. Officials polled the media for questions ahead of time in an effort to ensure there were no surprises when the premier gives his news conference.

(Writing by Nick Edwards; Editing by Kim Coghill and Don Durfee)

Source: http://news.yahoo.com/china-step-fx-reform-allow-freer-yuan-trade-033531455.html

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