Inflation still China's main economic worry -Wen
BEIJING, May 21 (Reuters) - The earthquake that devastated Sichuan last week has created new economic uncertainties, but inflation remains the country's most pressing economic problem, Premier Wen Jiabao said on Wednesday.
In remarks to a meeting of the State Council, China's cabinet, Wen ordered all central government departments to cut this year's budgeted spending by 5 percent to help fund 70 billion yuan ($10 billion) in quake relief and reconstruction.
His comments showed that China, in official declarations, was not wavering from its pledge to run a tight monetary policy and a prudent fiscal policy this year to tackle inflation.
"The key problem at present is the upward pressure on prices, in addition to tight supply of coal, power and oil in some regions, as well as relatively large pressure on fiscal spending," Wen said.
Inflation rose to an annual rate of 8.5 percent in April. Apart from February's rate of 8.7 percent, inflation was last higher 12 years ago.
"The earthquake in Wenchuan has had a significant impact on the disaster-hit zones and created new uncertainties for the overall economy, but it will not change the economic growth fundamentals," he added.
Direct economic losses in Sichuan will amount to about 67 billion yuan ($9.6 billion), or 0.27 percent of China's 2007 GDP, the government said this week.
The reduction in budgeted spending to make room for the rebuilding funds suggests Wen is sticking to his goal of cutting the government's budget deficit this year.
China projected in March that the central government would run a deficit of 180 billion yuan (0.6 percent of GDP), 65 billion yuan less than the deficit in 2007.
To make up for the unexpected outlay on disaster relief, Wen stressed that officials would have to tighten their belts.
"Purchases of new vehicles should be strictly controlled and approval for new government buildings will be put on hold," he said.
Spending on dinners should also be cut, he said.
China has previously expressed concern about a ramp-up in government spending this year because of the appointment of a new crop of officials. In the past, new officials have spent lavishly to secure their hold on power.
Adding to potential upward pressure on spending were harsh winter weather in the country's south and a train crash last month, which showed that, despite massive investment over the years, China still needs big infrastructure upgrades.
Wen's comments were posted on the central government's website.
In remarks to a meeting of the State Council, China's cabinet, Wen ordered all central government departments to cut this year's budgeted spending by 5 percent to help fund 70 billion yuan ($10 billion) in quake relief and reconstruction.
His comments showed that China, in official declarations, was not wavering from its pledge to run a tight monetary policy and a prudent fiscal policy this year to tackle inflation.
"The key problem at present is the upward pressure on prices, in addition to tight supply of coal, power and oil in some regions, as well as relatively large pressure on fiscal spending," Wen said.
Inflation rose to an annual rate of 8.5 percent in April. Apart from February's rate of 8.7 percent, inflation was last higher 12 years ago.
"The earthquake in Wenchuan has had a significant impact on the disaster-hit zones and created new uncertainties for the overall economy, but it will not change the economic growth fundamentals," he added.
Direct economic losses in Sichuan will amount to about 67 billion yuan ($9.6 billion), or 0.27 percent of China's 2007 GDP, the government said this week.
The reduction in budgeted spending to make room for the rebuilding funds suggests Wen is sticking to his goal of cutting the government's budget deficit this year.
China projected in March that the central government would run a deficit of 180 billion yuan (0.6 percent of GDP), 65 billion yuan less than the deficit in 2007.
To make up for the unexpected outlay on disaster relief, Wen stressed that officials would have to tighten their belts.
"Purchases of new vehicles should be strictly controlled and approval for new government buildings will be put on hold," he said.
Spending on dinners should also be cut, he said.
China has previously expressed concern about a ramp-up in government spending this year because of the appointment of a new crop of officials. In the past, new officials have spent lavishly to secure their hold on power.
Adding to potential upward pressure on spending were harsh winter weather in the country's south and a train crash last month, which showed that, despite massive investment over the years, China still needs big infrastructure upgrades.
Wen's comments were posted on the central government's website.
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