Chinese Premier Wen Jiabao cut his nation's growth target to 7.5 percent for 2012 to give the economy more room to slow down if needed while the government carries out promised economic and welfare reforms ahead of a looming leadership transition.
Speaking at China's annual parliamentary session, Wen nudged down the target from the longstanding goal of 8 percent annual growth, a move anticipated by investors expecting more focus on economic rebalancing and defusing price pressures.
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).
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 him and President Hu Jintao into retirement in a year.
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 through to build a more balanced economy that shares more wealth with hundreds of millions of ordinary farmers and migrant workers who remain reluctant to spend.
Wen and Hu, both 69, are near the end of a decade in power when China steamed through the global financial crisis and grew into the world's second-biggest economy after the United States.
The Communist Party will install a new cohort of leaders by the end of 2012, and Wen and Hu will step down as premier and president at the national parliament session early next year.
They have vowed to wean the economy off dependence on exports, smoke-stack industries and government-backed infrastructure, and promote balanced growth that will elevate the incomes and spending of farmers and workers.
Sources had earlier indicated to Reuters that the growth target would be cut to 7.5 percent.
If growth comes in at that level it would be lowest since 1990. In reality, the target acts more as a bar to get over, with the 8 percent target set in the previous eight years being comfortably exceeded in each of them -- including in the aftermath of the 2008/09 financial crisis.
In recent years, the GDP target has obviously always been a minimum acceptable floor rather than a ceiling, so I think it is more likely that in the government's heart of hearts, it is leaning on growth of a bit above 8 percent, said Paul Cavey, an economist with Macquarie Bank in Hong Kong.
It seems very unlikely there will be huge progress on structural reforms given the political transition, added Cavey.
The slower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker.
ECONOMIC, REFORM ANXIETIES
The last year in power for Wen and Hu has shuddered with anxieties about inflation, a feverish property market, local government debt, stubborn inequality and social strains from protesting villages to ethnic tensions in western regions.
The NPC is likely to bring into focus a deepening worry that Hu and Wen have squandered chances for reform because of fears of instability ahead of the leadership transition.
When they hand over power in late autumn, China could be headed for its slowest full-year of growth since Hu and Wen took office a decade ago. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9 percent.
Wen projected money supply growth of 14 percent and set a 4 percent target for inflation for the year, in line with the target set in 2011.
He said the government would work to prevent a rebound in prices in 2012. Inflation remained stubbornly above official targets in every month of last year.
Wen also pledged to curb speculative demand in the property market, and said the yuan would be kept basically stable with strengthened two-way flexibility in the closely managed exchange rate.
We will strictly implement and gradually improve policies and measures for discouraging speculative- or investment-driven housing demand, build on progress made in regulating the real estate market, and bring property prices down to a reasonable level, the premier said.
He said the government would defuse rising local government debt, regarded by many investors as the key risk to fiscal sustainability with about 10.7 trillion yuan ($1.7 trillion) owed by local governments, according to government figures at the end of 2010.
We will strengthen supervision of local government debt and guard against risks. We will further investigate and regulate financing companies run by local governments, Wen said.
The fiscal deficit was targeted at 1.5 percent of GDP, up from the 1.1 percent of GDP in 2011.
Critics, including prominent policy-advisers, have said the Chinese government can foster healthy long-term growth only by taking on bolder reforms to rein in state-owned conglomerates and other entrenched interests -- reforms that ultimately spill into sensitive issues of curbing the party's own powers.
Wen has stood out among China's leaders as the most persistent advocate of measured political relaxation, and has cast himself as a passionate advocate for farmers struggling with economic insecurity and land lost to developers.
We should care more deeply for rural migrant workers and provide more services to them, he said. We will place farmland under strict protection.
(Additional reporting by Benjamin Kang Lim and Koh Gui Qing; Writing by Nick Edwards and Chris Buckley; Editing by Don Durfee & Kim Coghill)