Corruption and inflation could have an "adverse impact" on stability in China, Premier Wen Jiabao warned on Sunday, also acknowledging that the people's thirst for democracy was "irresistible."
In a rare and wide-ranging interview with CNN, Wen touched on what until recently have been taboo subjects in Beijing and sought to brush aside international criticisms, insisting China's communist leaders were adapting.
"I do have worry for the management of inflation expectations in China," Wen told CNN's "Fareed Zakaria GPS" program.
"And that is something that I have been trying very hard to manage appropriately and well, because I believe corruption and inflation will have an adverse impact on stability of power in our country."
In mid-September, Beijing admitted that consumer inflation had risen at the fastest pace in nearly two years in August, as severe floods and unusually hot weather destroyed crops, driving up food prices.
The figure marked the 10th straight month that the consumer price index, a key measure of inflation, had risen.
Wen also acknowledged the difficulties of balancing the desires of China's 1.3 billion people with the need to maintain order across the vast, ethnically diverse country.
"I believe freedom of speech is indispensable for any country, a country in the course of development and a country that has become strong," Wen told the network.
"I believe, I and all the Chinese people have such a conviction, that China will make continuous progress and the people's wishes for and needs for democracy and freedom are irresistible," Wen said.
He trumpeted the fact that across China there were now some 400 million internet users and 800 million people with mobile phones.
And Wen revealed that he often logs onto the internet.
"I have read sharp critical comments on the work of the government on the internet and also there are commendable words about the work of the government," he said.
China's communist leaders have ruled with an iron fist since revolutionary leader Mao Zedong proclaimed the founding of Communist China in 1949, but in past decades have gradually opened some spheres such as economic activity.
But they remain wary of loosening controls on freedom of expression and demonstrations, and there are many high-profile dissidents and political activists imprisoned in China.
Wen insisted Sunday that any opening up "must be conducted within the range allowed by the constitution and the laws. So that the country will have a normal order."
He said a four-trillion-yuan (586-billion-dollar) stimulus package unveiled two years ago by China had steered its powerhouse economy on the right course amid the global financial downturn.
But he agreed China's leaders were on "high alert" against the possibility of any economic bubble.
Global ratings agency Fitch Ratings warned in mid-September that China faces a potential "hangover" from the government's massive spending spree.
Wen acknowledged Sunday that the implementation of the stimulus package meant "there are fiscal and financial risks at the level of local governments. We have some financing vehicles of local governments. They have some debts."
One of the key challenges now facing his country was to confront its structural problems, Wen said.
"I was one of the first ones to argue that our economic development still lacks balance, coordination and sustainability," he told CNN.
"This financial crisis has reinforced my view on this point. On the one hand, we must tackle the financial crisis; on the other, we must continue to address our own problems. And we must do these two tasks well at the same time, and this is a very difficult one."
Turning to a row with the United States over the yuan, accused here of being deliberately undervalued, Wen accused US lawmakers of politicising the issue saying a trade surplus was natural at his country's stage of development.
"China does not pursue a trade surplus," Wen said. "Some people in the United States, in particular some in the US Congress, do not know fully about China.
"They are politicising the problems in China-US relations -- in particular, the trade imbalance between our two countries," he said.
AFP
Link here:
http://www.smh.com.au/business/w ... 20101004-16349.html

Wow... I could go all over on this one.

First off, corruption has been rampant in China since, well, a long time.  China has been at best an fake egalitarian state since it's inception in current form, and corruption continues to be an issue going forward.  I don't think it is really any worse than it was before, just perhaps more often exposed.    Better communication and a more open media situation seems to put extremely corrupt local officials on the hot plate more often than before, but I just think it means they have to pass more money up the ladder.

Remember:  the vast majority of major industries, companies, and even the WG establishments are owned by highly placed government / police in their area, or are operating at the discretion and leisure of those same officials.  The partnership rules for companies coming from outside of China were set up as much to make sure that there was plenty of influence over appropriate payments and "lubing" of the local, regional, and national officials as it was to protect China's own marketplace.

Inflation is a temporary issue, mostly driven by the housing situation.  The Chinese government has already taken major steps to slow down and even completely stop real estate speculation, and further, are even going after absentee property owners (developed and undeveloped) to either use their properties or risk losing them.  This is a good indication that inflation will not be such a huge issue over time.   If there is a real estate bubble, it will be absorbed back by the state, which will make it disappear in one manner or another.   This is not a free market, and the government can use a velvet glove or a baseball bat as they see fit without any real repercussions.

The government has also allows the RMB to float more openly, which has moved the exchange rate with the US up a fair bit.  This is a good hedge against any true inflation, because it means that sales going outside of the country will bring in more RMB in value.   So even if there is 10% inflation (which would be huge), there is plenty of space for the currency to rise in a similar fashion, and provide the internal economy the cash flow it needs to continue.

When a high government official goes public commenting on a subject, make no mistake:  they are not going to allow it to continue at it's current levels (inflation or corruption).  I would consider some of the Beijing ordered raids on KTVs and Saunas to be much about controlling the corruption that is often rampant in the provinces, often outside of the central government's prerogatives.  Actions like this suggest that they are actively looking to get back their direct control over the regions.