China's Premier Wen Jiabao cut the country's growth target to 7.5 percent for 2012 in a bid to find leeway for promised economic and welfare reforms while delivering stability ahead of a leadership transition later this year.
Speaking at China's annual parliamentary session, Wen unveiled the growth estimate for the year that lowered the longstanding goal of 8 percent annual growth, a move well-anticipated by investors who were expecting a 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.
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.
Wen's annual state of the nation report to the parliament echoed with the institutional and social barriers that the government must overcome to achieve a more balanced economy that shares more wealth with hundreds of millions of ordinary farmers and migrant workers.
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 operates 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 during the fallout from the 2008/09 financial crisis.
ECONOMIC, REFORM ANXIETIES
But their last year in power has shuddered with anxieties about inflation, a feverish property market, local government debt, stubborn inequality and a host of 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 their chance 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 set a target for inflation at about 4 percent for the year, in line with the target set in 2011, saying that 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, he 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 that was delivered in 2011.
Wen and Hu, both 69, are approaching the end of their decade in power, an era in which China steamed through the global financial crisis and grew into the world's second biggest economy after the United States.
(Additional reporting by Benjamin Kang Lim; Writing by Nick Edwards and Chris Buckley; Editing by Don Durfee & Kim Coghill)