BEIJING - In the 1980s, affluent people from Hong Kong traveled to neighboring Shenzhen in South China's Guangdong province to buy vegetables and food because they were much cheaper.

Now, the tide has turned and some Shenzhen residents are buying their daily necessities in Hong Kong.

They spend more time on the road than they do strolling neighborhood vegetable stalls, but, due to the surging prices on the mainland, they still think the trip is worthwhile.

"The prices in Shenzhen have risen fast since last year," said Wan Lili, who lives in the southern economic boomtown where she operates a small medical machinery sales company. She visits Hong Kong every two weeks.

"The cost of soy sauce, egg and bean curd as well as shampoo are all higher at home than they are in the Hong Kong market I go to."

China's consumer inflation rate rose to 5.1 percent in November, the fastest increase for more than two years. It eased to 4.6 percent in December but jumped again to 4.9 percent in January, posing a test for policymakers.

Economists said rising costs are likely to be a challenge for several years and have warned that taming price rises will be an ongoing priority for the world's second-largest economy.

"The biggest challenge for China during the period of the 12th Five-Year Plan (2011-2015) will be to curb inflation while maintaining stable economic growth," said Li Yining, a senior economist and policy adviser.

The nation should increase its stockpiles of major commodities, including food, in a bid to help ease inflation, Li told Xinhua News Agency ahead of national meetings of top legislators and political advisers.

Development issues during the coming five years are likely to top the agenda of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference sessions, analysts said.

Topics including inflation and economic restructuring are likely to be discussed among legislators and political advisers as they look for solutions that will ensure the stable development of the nation.

"China must put the control of rising inflation at the top of its agenda this year," said Chief Economist of Deutsche Bank Greater China Ma Jun. "It's more important than the task of maintaining a high growth rate."

On Feb 8, the central bank announced it was raising benchmark interest rates for the third time since October in an effort to combat rising inflation.

"Given the harsh situation, the possibility of drastic hikes in interest rates during the coming months is increasingly likely," said Dong Xian'an, chief economist of Industrial Securities.

While China takes pains to try to keep inflation at bay, the issue will obviously not be the only major challenge facing those at the nation's helm during the coming five years.

On other fronts, curbing the rising investment boom and the acceleration of the nation's efforts to transform the world's second-largest economy into a consumption-driven growth engine could be no less daunting than controlling rising prices.

Growth is no longer the most important issue for this year. The World Bank said, on Jan 13, that China's economy could expand by 8.7 percent year-on-year this year. It expanded by 10.3 percent year-on-year in 2010.

During the coming years, that growth will slow but still be impressive compared with many other countries, analysts said.

Stable growth will facilitate the country's efforts to make a good start in its transformation of its economic growth pattern.

"China must attain that goal while facing short-term challenges such as rising inflation and an unstable international economic environment," said Sun Lijian, a senior economist at Shanghai-based Fudan University.

To achieve that goal, Sun suggested that the country should encourage more investment in the real economy and within strategically crucial sectors. In this way, it will be able to improve the competitiveness of the national economy and also increase people's income, which could in turn is likely to lead to more consumption, he said.

Lan Lan contributed to this story.

China Daily

(China Daily 02/28/2011 page2)