Whether they are elected by the people or not, politicians can rarely resist a bit of populism. Premier Wen Jiabao's report to lawmakers at the annual National People's Congress on Friday – China's equivalent of the US president's State of the Union address – included two big messages for the peanut gallery. First, no immediate yielding on the currency, which will be kept “basically stable”. Second, a promise to reform the hukou system of residency permits, through which economic migrants sacrifice rights to welfare, education and housing when they leave their hometowns.
Two fingers to Washington on the renminbi will play well with domestic audiences, but it is an empty gesture. China is likely to resume gradual appreciation against the dollar at some point this year. Having set a tougher inflation target for 2010, aiming to keep the increase in consumer price inflation at 3 per cent, down from 4 per cent last year, policymakers will probably need to use the entire toolkit – including higher policy rates and, yes, a stronger currency – to achieve it.
The second message was more significant. Urban incomes last year were 3.3 times those in rural areas – the widest divergence since reforms began in 1978 – and were rising 15 per cent faster.