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China shifts funds from infrastructure and development to social security in order to rebalance the economy

March 5, 2010

2010 will be a crucial year for China, Premiere Wen Jiabao told 3,000 delegates of the National People’s Congress on Friday. Wen was speaking during a two-hour televised speech in the Great Hall. The annual session of the NPC, where China’s leaders layout plans and budgets for the year ahead is the most public event the authoritarian government holds,.

While expecting China’s GDP to grow modestly at 8 percent this year, the same goal that the government has set and surpassed in each of the past five years, Wen this year expressed emphasis on social stability with economic growth.  Already on its way to becoming the world’s second largest economy (China’s GDP grew 10.7 percent in Q4’09), Wen pledged to narrow a yawning wealth gap, increase the stock of affordable housing, boost the moribund rural economy and fight rampant corruption.

“Everything we do, we do to ensure that the people live a happier life with more dignity and to make our society fairer and more harmonious,” Wen said. He is now in his seventh year of an expected ten-year term.

In order to cool mass market tensions, China, like India has decided not to roll back stimulus measures inviting as a result, a budget deficit of Rmb 1.05 trillion or 2.8 percent of GDP. Additionally Wen said, the increase in government spending would fall to 11.4 percent this year, half of what it was in 2009, while China’s defense budget will rise by 7.5 percent, its lowest in lore than 20 years.

 During his two-hour speech, Wen also promised to spend Rmb 43.3 billion to extend job creation programs that kept China’s factory full of rural workers buzzing, continue with export led growth, enforce strong inflation control measures, which is expected to peak at 4.4 percent this year and control banking risks. China’s banks lent a record Rmb 9.59 trillion (US$1.4 trillion) last year to keep the domestic economy afloat.

Analysts claim, the Chinese government in an attempt to rebalance the economy, is spending more on civil society by way of increasing budgetary allocation towards healthcare, pensions, housing, rural development and education rather than on development and infrastructure, which has been the governments priority until now.

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