MercoPress. South Atlantic News Agency

China planning to expand “modest” 8% in 2005

China is planning to grow a “modest” 8% in 2005 after having achieved a 9,5% expansion last year reported Prime Minister Wen Jiabao during the inaugural address to the 3,000 members of the Peoples National Assembly in Beijing.

Mr. Wen Jiabao also confirmed that measures to "cool" the Chinese economy will remain in place and anticipated reforms to the fixed exchange rate system which will "ensure the stability" of the Chinese currency.

"Given the current economic conditions, we can't relax macroeconomic controls" indicated Mr. Wen Jiabao adding that fiscal and monetary policies will remain "stable and healthy".

In his address the Prime Minister estimated that "urban" unemployment in China last year stood at 4,6%, a slight increase over the 4,2% of 2003 when the economy expanded 9,1%.

Further on Mr. Wen said that "we will advance in a sustained way to make interest rates more market oriented and in reforming the exchange rate mechanism of the Yuan or Renminbi".

China which has become the world's seventh economy has been under pressure from its main trade partners who demand a less rigid flexible exchange rate, but Beijing has conditioned the issue to a more pressing domestic agenda such as reforming the overexposed banking system. United States has repeatedly argued that the fixed rate of 8,28 Yuan per US dollar is too low and an unfair advantage for Chinese exports.

Another issue is energy shortage. China's energy consumption is equivalent to Japan and half the US, but "it's used inefficiently and with carelessness towards the environment", admits Ma Kai who presides over the powerful Reform and Development Committee.

"If we don't address this challenge, then we won't be able to sustain our rapid economic growth", said Mr. Mai.

China's Central Bank president Zhou Xiaochuan anticipated that the country will continue advancing in a reform mechanism for the exchange rate, but ensuring that the Yuan is kept "basically stable". Mr. Zhou added that two of the country's main banks will "soon" have shares floated in the stock exchange.

The budget deficit is expected to be reduced to the equivalent of 36 billion US dollars in 2005, a 2,5 billion US dollars drop from last year.

As to the possibility of "diversifying" the country's 600 billion US dollars international reserves to other currencies, Mr. Zhou said it was a "standing policy of the bank" and anticipated no major problems in the coming years.

On a more political side, Prime Minister Wen Jiabao announced a 12,6% increased in defence expenditure which is estimated in 30 billion US dollars. However US analysts believe China spends closer to 55 billion US dollars in defence. (U.S. spends an estimated 500 billion, Russia 65 billion, Japan 47 and Britain 43).

The announcement follows Beijing's reiteration of the "peaceful reunification" policy regarding Taiwan and a debate on a constitutional amendment which makes military intervention mandatory if the "rebel" island decides to formally declare independence.