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China will boost spending, try to close income gap

Policies needed to head off social unrest, Wen says

Delegates left after the opening session of the National People’s Congress at the Great Hall of the People in Beijing yesterday. Delegates left after the opening session of the National People’s Congress at the Great Hall of the People in Beijing yesterday. (Goh Chai Hin/ AFP/ Getty Images)
By Charles Hutzler
Associated Press / March 6, 2011

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BEIJING — China’s government called yesterday for higher social spending, controls on inflation, and measures to urgently close a divisive rich-poor gap, betting that rising living standards, better services, and heavy policing 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.

Spending on police, courts, prosecutors, and other domestic security is projected to exceed the usually favored military budget for the first time in years, climbing 13.8 percent to $95 billion.

Wen reiterated several times during his two-hour-plus speech that the authoritarian government sees the combination of policies 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 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 toppled autocrats in Tunisia and Egypt. Beijing has been under ever heavier security since the Internet messages first appeared more than two weeks ago.

With a new appeal calling for more rallies today, the Beijing Daily, the official Communist Party newspaper, issued a rare front-page editorial yesterday 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,’’ the editorial said.

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 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 at a supermarket in Handan and a delegate to congress.

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 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 number two 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.

More urgent, 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.

Wen 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 close the wealth gap that has stayed above what analysts 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.

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