China premier: ‘Critical period’ due to inflation

updated 5:58 p.m. ET March 5, 2008

BEIJING - China's premier on Wednesday extolled the prosperity the Communist government has brought to many Chinese, yet he sounded an alarm that inflation could derail the country's rapid emergence.

The mixed message in Premier Wen Jiabao's annual policy address underscored the problems Chinese leaders face in meeting public expectations for ever rising standards of living.

For the first time in more than a decade, inflation is emerging as a danger at home, potentially eroding incomes of a fledgling middle class and inflaming tensions between the newly rich and the majority low-income workers and farmers. Overseas, the U.S. economic woes and trade friction with Europe could wreck key markets for job-creating export industries.

"All this could adversely affect China's economic development," Wen told 2,970 delegates in his address opening the national legislature's annual session. "China is now in a critical period in its reform and development."

In a 2 1/2-hour state-of-the-nation speech, Wen ticked off proud achievements since he and Communist Party chief Hu Jintao took office five years ago: China has soared to become the world's No. 4 economy, just behind Germany. Urban incomes rose 80 percent, rural ones by nearly that much.

"There was a great increase in the number of family owned cars and rapid spread in the use of cell phones, computers and Internet services," Wen said. "The number of people going on vacations increased several fold."

But just as the two-week meeting of the National People's Congress should be celebrating China's middle class and world-power status, the event is unmasking crucial divisions hampering the leadership's ability to tackle inflation and other new challenges.

Can anyone impose policies?
Unlike the totalitarian days of Mao Zedong, when officials marched in lockstep with Beijing, the Hu-Wen team has been criticized by business executives and ordinary Chinese for being weak, unable to impose policies on local governments and agencies on the cleaning up the environment, and halting land confiscation — issues increasingly inciting protests.

"In Mao Zedong's day, one soldier could command 10,000. Now 10,000 soldiers cannot command one," said Liu Anjun, a campaigner for citizens rights.

Complicating matters, the congress — a largely powerless body filled with influential politicians and officials — falls amid a painful leadership transition. At a party conclave last fall, Hu was forced to pass over a favored deputy and accept a compromise candidate as a presumptive successor, Xi Jinping, the son of a now dead party power-broker.

There are signs the cohabitation is not going smoothly, political experts said, with one former Foreign Ministry official likening it to a forced adoption.

Xi was recently given a plum assignment, overseeing final preparations for the greatly anticipated Beijing Olympics. The congress is expected to bring him a step closer to succeeding Hu, anointing him a vice president, a position Hu formerly held. Meanwhile, Hu's protege, Li Keqiang, is expected to be named a vice premier, putting him in the firing line on fighting inflation.

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