China sets 2012 growth target at 7.5 percent, stability key

BEIJING (Reuters) - China aims to grow its economy by 7.5 percent in 2012 by following procative fiscal and prudent monetary policies to combat downward pressure on growth and still high inflation, Premier Wen Jiabao said on Monday.

The growth estimate, revealed at the start of China’s annual parliamentary meeting, was in line with analyst expectations and lower than the longstanding annual goal of 8 percent, reflecting the government’s focus on delivering economic stability ahead of a leadership transitition later in the year.

“We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach,” Wen said in his annual work report to the National People’s Congress (NPC).

Wen set a target for inflation at about 4 percent for the year, in line with the target set in 2011, saying that the government would work to prevent a rebound in prices in 2012. Inflation remained stubbornly above official targets in every month of last year.

The fiscal deficit was targeted at 1.5 percent of GDP, up from the 1.1 percent of GDP that was delivered in 2011.

Wen also pledged to curb speculative demand in the property market, and said the yuan would be kept “basically stable” with strengthened two-way flexibility in the closely managed exchange rate.

And he highlighted that the government would take action to solve the local government debt problem, regarded by many investors as the key risk to fiscal sustainability with about 10.7 trillion yuan ($1.7 trillion) owed by local governments, according to government figures at the end of 2010.

“We will strengthen supervision of local government debt and guard against risks. We will further investigate and regulate financing companies run by local governments,” Wen said.

Wen’s work report echoed the difficulties of transforming growth and taming inflation while the Communist Party navigates a leadership handover that makes ensuring employment and defending stability even more of a priority.

Wen and President Hu Jintao, both 69, are approaching the end of their decade in power, an era in which China steamed through the global financial crisis and grew into the world’s second biggest economy after the United States.

The Communist Party will install a new cohort of leaders by the end of 2012, and Wen and Hu will then step down as premier and president early next year.

Additional reporting by Benjamin Kang Lim; Writing by Nick Edwards; Editing by Richard Pullin