Premier stresses importance of consumption and narrowing the income gap

A growth target of 7.5 percent and a greater focus on consumption and economic reforms were some of the goals set out by Premier Wen Jiabao in a keynote address on Tuesday.

An inflation target of 3.5 percent was set, below the 4 percent target of 2012, Wen said in his last Government Work Report to the National People's Congress.

The growth target is the same as last year's, when GDP increased by 7.8 percent from a year earlier, a 13-year low.

Economic growth in 2011 was 9.3 percent and 10.4 percent in 2010.

The consumer price index, a main gauge of inflation, rose by 2.6 percent year-on-year in 2012, compared with 5.4 percent in 2011.

Wen stressed the importance of boosting domestic demand as a long-term strategy vital to supporting development.

"We should use the power of consumption to unleash the potential of economic growth," Wen said and called for income distribution reform and the narrowing of the income gap.

Ma Jiantang, head of the National Bureau of Statistics, said, "the GDP growth target was rational", but he highlighted the importance of income growth.

"A key ingredient toward improving consumption is to ensure that incomes can keep up with stable growth," Ma said.

Li Ruogu, chairman and president of the Export-Import Bank of China, said that the target of 7.5 percent would not be difficult to achieve as the policies are in place.

"We won't see a big fluctuation in the CPI this year because the government has put more emphasis on fighting inflation," he said.

Li Yining, an economist at Peking University, agreed that economic growth should be about 8 percent. "But the important thing is to improve the quality of that growth."

The government decided to continue a proactive fiscal policy and a prudent monetary policy.

A fiscal deficit target of 1.2 trillion yuan ($190 billion) and a 13 percent growth in the broad money supply, or M2, were set.

"Our proactive fiscal policy should play a bigger role in ensuring steady growth, advance reform and benefit the people," Wen said.

Zhou Xiaochuan, governor of the People's Bank of China, the central bank, said that the slower growth of M2 this year indicated that the government aims to moderate the monetary supply as the world's main economies turn to monetary easing.

M2 is a broad measure of money supply that covers all the deposits and cash in circulation. It registered a year-on-year growth rate of 13.8 percent by the end of December.

In January, the indicator grew by 15.9 percent from a year earlier, after lenders extended loans of 1.07 trillion yuan, a record high of monthly new loans in nearly three years.

Liu Mingkang, former chairman of the China Banking Regulatory Commission and a national political adviser, said the monetary stance this year would be tighter compared with last because capital inflow has become a realistic threat.

A forecast from JPMorgan said that the 2012 GDP growth may stand at 8.2 percent, supported by policy easing and a recovery in the housing market.

Zhu Haibin, chief China economist at JPMorgan, said, "The government needs to pay attention to the investment boom risk this year, which usually happens in the first year after a leadership transition."

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Wei Tian and Chen Limin contributed to this story.