China says it will tackle inflation, boost incomes

China's government called Saturday for higher social spending, controls on inflation and measures to urgently close a divisive rich-poor gap, betting that rising living standards and better services will dampen growing public expectations for change.

In a speech that is China's equivalent of a state-of-the-nation address, Premier Wen Jiabao said the government will boost spending 12.5 percent this year, with bigger outlays for education, job creation, low-income housing, health care and pensions and other social insurance.

More than just an economic plan, Wen reiterated several times during his two-hour-plus speech that the authoritarian government sees the program as crucial to forestalling unrest among a population grown used to greater prosperity and expecting more.

"We must make improving the people's lives a pivot linking reform, development and stability ... and make sure people are content with their lives and jobs, society is tranquil and orderly and the country enjoys long-term peace and stability," Wen told the 2,923 delegates gathered in the Great Hall of the People for the opening of the national legislature's annual session.

The emphasis comes as the government seems increasingly anxious about calls of unknown origin posted online urging Chinese to stage peaceful rallies every Sunday like the ones that topped autocrats in Tunisia and Egypt. Beijing has been smothering under ever heavier security since the Internet messages first appeared more than two weeks ago.

With a new appeal calling for more rallies Sunday, the Beijing Daily issued a rare front-page editorial Saturday warning people not to be fooled into joining protests that would wreck China's prosperity.

"It's worth noting that people with ulterior motives from within and outside the country are attempting to lead China into chaos," said the daily, the capital's official Communist Party newspaper.

The plans for greater social spending along with nervousness over social unrest underscore the difficult moment the leadership finds itself in. Protests, strikes and other mass disturbances - some 180,000 last year according to Chinese academics - are soaring in tandem with living standards. While people want greater accountability and better governance if not democracy, the government is expending ever greater effort to stay ahead of public demands.

"The people are the cornerstone for the ruling party. As the old saying goes, 'The water can float the boat, but can also sink it,'" said Han Yuchen, chief executive officer at a supermarket in the northern industrial city of Handan and a delegate to the congress. "If we pay enough importance to improving the livelihood of the people, that means we care about the people and we can have a better future for this country."

The 10-day National People's Congress is a largely pro-forma affair. Wen's program has been devised and fine-tuned by the leadership over recent months, and the congress delegates - influential politicians, officials and business figures from the provinces as well as military commanders - are overwhelmingly party members.

Still the event portends important changes this year. The most far-reaching of Wen's programs is an ambitious five-year plan to transform the economy, making it more driven by consumption and less dependent on hefty state investment bank loans that have produced breakneck growth but also asset bubbles, particularly in real estate.

Such a shift would expand household spending power, level the playing field for private companies and end policies that have effectively shortchanged consumers and channeled their savings to state enterprises. In doing so, China is likely to import more, lessening friction and global imbalances with the United States and other trade partners.

Doing so requires tinkering with the successful formula that has vaulted China to the world's No. 2 economy, and Wen promised a gradual approach. Complicating the task are vested interests - state companies, real estate barons and their political backers - and a political succession that will see Wen, President Hu Jintao and most other top leaders begin to step aside late next year for a younger group of politicians.

More urgently, Wen said, is the need to rein in inflation and boost the incomes of working class Chinese, farmers and pensioners. Both matters risk exacerbating social tensions, Wen said, especially inflation, which has hovered around 5 percent in recent months but is double that rate for many staples.

"This problem concerns the people's well-being, bears on overall interests and affects social stability," Wen said. He said the government would continue to impose price controls as needed, raise price supports for wheat and rice and increase the supply of key commodities by building up reserves to be released into the market when needed.

To close the wealth gap that has stayed above what experts consider a warning line despite previous government efforts, Wen proposed a surge in social spending, steady rises in the minimum wage, restrictions on executive pay and taxes on expensive real estate.

While laying out the challenges, Wen also dwelled on the successes China has enjoyed - average annual growth of 11 percent and raising urban and rural incomes by around 9 percent over the past five years.

Much on display in Wen's speech and accompanying government documents is the technocratic attention to detail that has made China an economic success and given the party its staying power. China added 3,000 miles (5,000 kilometers) of railways and 75,000 miles (120,000 kilometers) of highways to its transport system over the past five years, the state planning agency said. Wen promised that every primary and secondary school child would have one hour of physical exercise every school day.