The Gross Domestic Product jumps 9.7 per cent against a 5.4 inflation rate. Chinese leaders now pledge price controls, help for domestic consumption and more flexibility on the yuan. By reducing the purchasing power, this could hit hard middle-income households, and force them into bare subsistence.

Beijing (AsiaNews/Agencies) – China’s Gross Domestic Product increased by 9.7 per cent in the first quarter from a year earlier, higher than the 9.5 per cent expected, the country’s National Bureau of Statistics announced. However, consumer price inflation also jumped by 5.4 per cent, the fastest rise since July 2008. The authorities have responded quickly by announcing countermeasures.

Economists’ concern over high inflation indicates that government action so far has not been effective. China’s central bank, the People's Bank of China, has increased the benchmark interest rates four times since last October; yet, many expect inflation to remain high in the second quarter of the year.

Agricultural prices have led way with food costs up 11.7 per cent, especially painful for price-sensitive middle-income households. Higher oil prices have added pressure on inflation.

Promptly, Chinese leaders have pledged action. “We will try every means to stabilise prices,” Prime Minister Wen Jiabao said at a cabinet meeting. This is “the top priority of our economic controls this year and also our most pressing task,” he added.

Nevertheless,, Beijing has blamed price rises on speculation and on several occasions has said that it would impose controls. Meanwhile, food prices have climbed steadily.

Wen also promised to rein in real estate costs. At the same time, “Over the next five years, China will make a great effort to boost domestic demand, especially consumer demand” and “promote  [the] basic balance of our trade,” Chinese President Hu Jintao said at an economic forum on Hainan Island.

Beijing has been trying to do this by boosting domestic consumption and making China’s economy less dependent on exports. In the first quarter of the year, consumption contributed 5.9 percentage points to China's first-quarter growth rate, while investment added 4.3 percentage points.

Experts believe however, that Beijing must let the yuan appreciate if it wants to cut import costs.

In the first quarter of the year, China had trade deficit of US$ 1.02 billion, the first in seven years. Imports in the first three months jumped 32.6 per cent year-on-year to 400.66 billion yuan (US$ 61 billion), whilst exports rose by 26.5 per cent year-on-year to 399.64 billion yuan, the General Administration of Customs reported.

On Friday, the yuan traded at 6.5350 to the US dollar. The upward trend has contributed to higher imports and kept prices in check.

Wen pledged to make the yuan more flexible to rein in price rises driven by imported inflation.

However, China has not been spared criticism. Billionaire George Soros has recently slammed Beijing’s low yuan policy for the country’s ‘out-of-control’ inflation, which is eroding wages.

• china
• economy
• inflation
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• hu
• jintao
• wen
• jiabao
• george
• soros