BEIJING, March 5, 2008 (AFP) - Premier Wen Jiabao said Wednesday inflation was now the top concern for China's 1.3 billion people, pledging to take steps to slow the Asian giant's red-hot economic growth rate in 2008.

In an annual address to parliament, which is always scoured for clues to the thinking of China's communist leadership, Wen said the government would look to slow growth to around eight percent and keep inflation at 4.8 percent.

But the premier admitted that could be a tough goal to meet after another year of astonishing growth in 2007, which has driven up the cost of food and other basics and helped fuel public anger at the government.

'The current price hikes and increasing inflationary pressures are the biggest concern of the people,' Wen told the 3,000 delegates to the National People's Congress, or parliament, at the start of its annual full session.

'We have to take into consideration the ability of individuals, enterprises and all sectors of society to tolerate price increases and try our best to avoid sharp price increases.'

Inflation is one of the most sensitive issues for China's Communist Party rulers, as soaring costs of essentials have the potential to lead to social instability.

The 4.8-percent inflation target was the same as rate for 2007, which was an 11-year high that came despite government pledges to rein it in at just three percent.

'Because factors driving up prices are still at work, upward pressure on prices will remain great this year,' Wen said.

Aside from inflation, the premier said the top economic priority for the government was to prevent the booming economy from overheating.

'The primary task for macroeconomic regulation this year is to prevent fast economic growth from becoming overheated growth and keep structural price increases from turning into significant inflation,' he said.

In that light, China has set a growth target of about eight percent this year, Wen told the delegates.

China set the same target last year, but nevertheless ended up with an economy that expanded by 11.4 percent for its fifth consecutive year of double-digit growth.

Wen also listed a litany of challenges facing China as it opened up further to the volatile world economy.

'The impact of the US subprime mortgage crisis is expanding, (and) the value of the dollar is continuing to fall,' he said. 'Trade protectionism has gotten worse, and trade frictions have increased.

'China is now in a critical period in its reform and development, and we must be fully prepared for changes in the international environment and become better able to defuse risks.'

Aside from the dangers looming abroad, Wen pointed to plenty of domestic problems other than inflation.

'China has experienced overheated growth in fixed-asset investment, excessive supplies of money and credit,' he said.

'The growing development gap between urban and rural areas and between regions has not been checked.'

Addressing an issue of particular interest to global audiences, Wen suggested the Chinese currency would be made more flexible.

'We will improve the (yuan) exchange rate regime to make the exchange rate more flexible,' Wen said.

China moved the yuan away from a pegged exchange rate to the US dollar in July 2005, and has since allowed its currency to strengthen by about 15 percent.

Wen also said China expected a central government budget deficit of 180 billion yuan (25.4 billion dollars) this year, down 27 percent from 2007.

Economists said the growth target should not to be taken too literally, and more as an indication of the government's overall intentions.

'The eight-percent growth target is just meant as guidance,' said Chen Jijun, a Beijing-based analyst with Citic Securities.

'It's meant to say that we shouldn't just target growth and nothing else, but in the end actual growth always ends up being higher than eight percent.'