Inflation likely to stay above 4pc target, Wen says

Premier Wen Jiabao hinted for the first time that China would find it difficult to attain its 4 per cent target for inflation this year, but said he was confident the rate could be kept below 5 per cent.

Wen told a Chinese community in London on Sunday the government was taking the battle against inflation seriously.

'My experience is that if inflation goes with corruption, they could undermine a regime's stability and a society's harmony,' he said.

Wen said he expected a bigger rise in the consumer price index this month but a slowdown for the rest of the year, meaning inflation could be kept below 5 per cent with economic growth of 8 per cent to 9 per cent.

In an article by Wen published in the Financial Times on Thursday, he said the answer to the question of whether China could rein in inflation and sustain its rapid development was an 'emphatic yes'.

'The CPI for June will be even higher because of the carry-over effect. But after that, if all our measures to tackle inflation are smoothly implemented, the figure will go down month by month,' Wen said on Sunday. 'However, I think keeping to the 4 per cent target is difficult, but I believe we can keep it under 5 per cent.'

The central government has pledged to make curbing inflation its top priority, and Wen set out an annual target of 4 per cent in his government work report released in March.

The CPI rose 5.4 per cent in March, 5.3 per cent in April and 5.5 per cent last month.

'If the economic growth rate is at 8 per cent to 9 per cent, and the CPI is kept below 5 per cent, the economy of China is still among the best in the world,' Wen said.

He said some people had 'smeared' China's economic performance, but its officials knew how economic problems should be handled.

'We will be more determined to implement measures with careful planning,' he said.

'I am still confident that we can let China's economy develop steadily and in a stable manner.'

Beijing has set an annual economic growth target of 7 per cent for the next five years - the lowest in the past 30 years - to address imbalances and unsustainable development. The annual growth rate in the previous five years averaged 11.2 per cent.

Wen said growth would push up inflation but he expected grain prices to remain stable because output had increased for seven years.

'We have sufficient food reserves. I am not shy to make such a statement,' he said.

Wen said the Chinese economy had developed positively this year, with a 30 per cent year-on-year increase in government revenue over the first five months, which he said was an indication of a good environment for business.

He said China would continue implementing reforms to become a strong, civilised, democratic and harmonious country.

'We must be determined to stick to the path of opening up and reform,' he said. 'There will be no way out if we go backwards.'