AP

A vendor watches the live telecast of the annual government work report by outgoing Premier Wen Jiabao on a television in a vegetable market in Fuyang in central China's Anhui province on Tuesday.

BEIJING — China pledged to tackle problems which threaten to alienate the country's growing middle class and aspirational masses as its once-in-a-decade changing of the guard at the top of the country’s government got under way.

"We should unwaveringly combat corruption, strengthen political integrity, establish institutions to end the excessive concentration of power and lack of checks on power and ensure that officials are honest, government is clean and political affairs are handled with integrity,"said China's outgoing premier Wen Jiabao at the China’s National People’s Congress (NPC).

Wen on Tuesday enumerated major domestic challenges that have caused public discontent in recent years — air pollution, toxic factories, tainted food and abuses of power — and pledged more resources to environmental protection and public welfare. His speech was a tacit admission that quality of life had been sidelined by a focus on breakneck economic growth.

"We are keenly aware we still face many difficulties and problems in our economic and social development," said the premier, whose family was accused in a New York Times report late last year of amassing billions of dollars in assets. 

While the Chinese leadership also announced a boost in defense spending, the focus of this year’s Congress appeared to be decidedly domestic.

Widening inequality and a more discontented middle class were the big issues facing new leaders, said Damien Ma, analyst at the Paulson Institute, an independent think-tank.

"The problem is whether China can address the costs of that growth and seriously face the growing social cleavages that such growth has wrought," he said.  

The rhetoric about improving the quality of life was not new, said Susan Shirk, an expert on Chinese politics and former Deputy Assistant Secretary of State during the Clinton administration.

Reuters, file

An elderly exercises in the morning as he faces chimneys emitting smoke behind buildings across the Songhua river in Jilin, Jilin province, on Feb. 24. China's new rulers will focus on consumer-led growth to narrow the gap between rich and poor while taking steps to curb pollution and graft, the government has said.

"The ... government talked about it every year at the NPC for the past 10 years," she said.

It was also unclear how far the government could go to address worries over extraordinary high levels of pollution and food safety, experts said.

A boost in budget for forces tasked with maintaining the peace at home was worth note, said Jeffrey Wasserstrom, author of "China in the 21st Century."

China's public security budget will reach $32.6 billion, an increase of 7.9 percent, which will "improve the mechanism for ensuring funding for primary-level ... judicial and public security departments," according to a Ministry of Finance report.

A big challenge for the government, and a possible impediment to addressing environmental concerns, will be the need to maintain high rates of economic growth, according to experts. 

"The government will struggle to reconcile its environmental agenda with the resource-intensive urbanization program that is set to underpin economic growth," said Nicholas Consonery of political-risk consulting firm Eurasia.

To boost domestic consumption and mitigate the widening rich-poor divide, China plans to migrate hundreds of millions of farmers to the cities in the next ten years. With higher incomes, the urban middle class will boost domestic consumption which will underpin future economic growth. 

In addition to promising to grapple with environmental and social welfare issues, the government announced a 10.7 percent increase to its military budget, continuing the double digit increases seen in the last two decades, even as the country appeared set to see its lowest economic growth in years. 

A new aircraft carrier and stealth fighter bombers would be added to the military amid escalating maritime disputes with Japan and other Asian neighbors, the NPC announced.

The defense modernization will help to ”resolutely uphold China’s sovereignty, security and territorial integrity,” Wen said during his last work report after ten years at the helm of China’s Cabinet.

The move is seen as attempt of the new leadership headed by Party chief and incoming President Xi Jinping to project strength and forge strong ties with China’s military, a major base of support. China is now the world’s second biggest military spender with $114 billion, after the United States which spent $633 billion last year.

The ongoing military buildup was not cause for alarm, Shirk said.

“The increase is consistent with past budgets... Roughly in line with economic growth. Not a massive military buildup,” she said.

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China Daily via Reuters, file

Chinese Premier Wen Jiabao shakes hands with local workers in earthquake-hit Mianzhu, Sichuan province in this Jan. 25, 2009 file photo.

BEIJING – When news broke earlier this year that the family of disgraced Chongqing party boss, Bo Xilai, had amassed $160 million in ill-gotten earnings, the story was seen as a proverbial pin in the balloon China’s ruling Communist Party has long floated to its people about its leadership.

In China the storyline went something like this: local-level officials could be and have been corrupted. But China’s highest leaders were incorruptible, pious men who were sympathetic to the plight of the country’s citizenry.

Bo’s corruption and the transgressions of his inner circle have been very publicly renounced by the Communist Party. His wife, Gu Kailai, was found guilty of the murder of British businessman Neil Heywood while his former deputy police chief, Wang Lijun, was jailed and held up as a traitor after his now infamous flight to the American Consulate in Chengdu this past winter.

News Friday that Bo had been stripped of his last party title appears to pave the way for a convenient resolution of the scandal before a critical once-in-a-decade leadership changeover on Nov. 8 at the 18^th Communist Party Congress.

But the revelation in Friday’s New York Times that the family of Chinese Premier Wen Jiabao controlled assets of at least $2.7 billion dollars posed a grave threat to the Party’s preferred narrative of being the honest broker that brings prosperity to all.

NYT report: China leader Wen Jiabao's family has amassed billions in assets since '98

So much so that Beijing was forced Friday to kick the censorship gears up a notch, blocking the English- and Chinese-language websites of the New York Times, blacking out mentions of the story on independent cable news channels carried in China, and censoring the names of Wen’s family and other mentions of the story on China’s Internet.     

At a Foreign Ministry briefing Friday, a spokesman gruffly stated that the Times’ report "blackens China's name and has ulterior motives." When asked why the paper’s website was being censored, he said, "China manages the Internet in accordance with laws and rules."

One piece of information not censored, however is a report released Thursday by the research group, Global Financial Integrity, which estimated $3.7 trillion dollars had been pilfered and smuggled out of China from 2000 through 2011.

The report also estimated that $472 billion -- or 8.3 percent of China’s 2011 gross domestic product -- had been stolen last year alone.

Just how guilty Wen is in his family’s nationwide money grab is up for debate. As the Times’ report noted, a 2007 diplomatic cable published by Wikileaks quoted an executive who noted that the premier was aware of his family’s lucrative business ventures: “Wen is disgusted with his family's activities, but is either unable or unwilling to curtail them."

Wen’s failure to reign in his family’s financial activities threatens to undermine the carefully scripted public persona he has cultivated over the years.

Slideshow: The dance of two giants

AFP - Getty Images

A click-through history of modern relations between the United States and China.

Launch slideshow

Nicknamed “Grandpa Wen” by state media, the premier has relished opportunities to be photographed connecting with members of rural communities and blue-collar workers. During the 2008 Sichuan earthquake, he was a near-daily presence in news reports about the disaster and government rescue and recovery efforts.

He has also been dogged in his calls for economic reform and greater income equality. At this year’s National People’s Congress, during what was likely his last major press conference in a 45-year-long political career, Wen called for reform.

“Even with a single breath left, I am ready to dedicate myself fully to the cause of China’s reform,” he was quoted as saying.

Although Wen was speaking months before the release of the Times piece, he still apparently felt the need to address whispers about relatives trading on the family name. “I have never pursued personal gain,” declared Wen, before adding, “History will have the final say.”

Communist Party officials hope to control the writing of history. But the institution is starting to feel the strain of having to push an ever heavier stone uphill. The Internet has made information more widely available than ever before on the mainland; what censors just 10 years ago could make disappear – sometimes literally -- has become more problematic today.

Still, while completely squashing a story in China seems to no longer be possible, it may not be Beijing’s intention or even in its best interest to stifle information. Some Chinese have found ways to circumvent the Great Firewall, while millions have gone abroad, where they have been exposed to the world beyond. Allowing them the safety valve of relatively free information does not pose an immediate threat to Party rule for now.

That’s because the vast majority of China’s population appears to be apolitical, disinterested in or unwilling to engage in any meaningful political discourse. This situation is changing, quickly at times.

For now, however, the censorship of unpalatable stories is an effective albeit cumbersome tool for the Party to wield.

As for the New York Times, its fate in China looks dim. Just two months ago, Bloomberg ran a similar story that showed how the family of China’s likely future president, Xi Jinping, had also accumulated a vast business fortune – though unlike Wen’s kin, Xi’s immediate family did not appear to be reaping the same economic benefits.

Bloomberg’s website has since been blocked on the mainland. 

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Updated 08:31 a.m. ET: Secretary of State Hillary Clinton said "progress had been made" on a deal over the future of Chen Guangcheng, telling reporters in Beijing she was encouraged by China's suggestions that the blind activist might be allowed to study abroad. 

After she spoke, State Department spokeswoman Victoria Nuland told Reuters that Chen had been offered a fellowship from an American university, where he could be accompanied by his wife and two children.

"The Chinese Government has indicated that it will accept Mr. Chen's applications for appropriate travel documents. The United States government expects that the Chinese government will expeditiously process his applications for these documents, and make accommodations for his current medical condition," she added.

"The United States government would then give visa requests for him and his immediate family priority attention," Nuland said.

AFP - Getty Images

U.S. Treasury Secretary Timothy Geithner left, U.S. Secretary of State Hillary Clinton, center, and Chinese Vice-Premier Wang Qishan, right, at a closing ceremony of the U.S.-China Strategic and Economic Dialogue in Beijing Friday.

Clinton said efforts would continue to finalize an agreement over Chen's future, adding that the U.S. ambassador had visited the dissident in hospital.

"We have been very clear and committed to honoring his choices and our values," Clinton said of Chen.

Signs of a deal will provide relief to both the Obama administration -- which feared the case would overshadow the ongoing economic talks, Clinton's main purpose in China -- and the Chinese, who were reportedly keen to resolve the issue while saving face.

Earlier, Chen told The Associated Press that friends who had tried to visit him “have been beaten,” his wife Yuan Weijing had been followed and U.S. officials had been prevented from seeing him in person.

Carlos Barria, Reuters

A doctor from the U.S. embassy arrives Friday at the Chaoyang Hospital, where blind activist Chen Guangcheng is staying.

He added that he had spoken to U.S. officials by phone, but “the calls keep getting cut off after two sentences.”

“Basically I am very worried. Okay? … It is very dangerous here,” Chen told the AP, before the line went dead.

Chen, 40, is a legal activist from Shandong province who campaigned against forced abortions under China's "one-child" policy.

On April 22, he escaped 19 months of house arrest, during which he and his family faced beatings and threats. Supporters then said he was in the U.S. Embassy in Beijing, which he left after six days to go to the hospital on Tuesday this week after receiving assurances from the Chinese authorities.

Chinese crackdown on dissident's family and friends

He Peirong, an activist who helped Chen escape from house arrest and drove him to Beijing was released by police Friday. She was taken away by police last Saturday. She tweeted at about 3 a.m. ST that "I'm back, everything is ok, thank you.” She declined to comment to NBC News.

Blind activist Chen Guangcheng: 'I want to leave China on Hillary Clinton's plane'

Lawyer Jiang Tianyong, another of Chen’s friends, was arrested by police Thursday evening and told NBC News Friday afternoon that he had been beaten up. He lost his hearing temporarily and is undergoing a medical check-up now, accompanied by police.

Amid the continuing concern over what will happen to Chen and his supporters, Clinton and Treasury Secretary Timothy Geithner met Wen in the pavilion, a ceremonial reception hall in the style of a Chinese pagoda, nestled by pine trees and a lake in the middle of Beijing.

"This round of the dialogue is highly productive. I can say we achieved rich fruit in this round and some of those are important breakthroughs,” Wen said, according to a translator.

"What is the secret behind the sustained and the steady growth of the Strategic and Economic Dialogue [formal name for talks between the two countries]? I believe the most important thing is that we respect each other and treat each other as equals and have accommodated each other's major concerns,” he added.

China censors 'Shawshank' as Clinton heads to Beijing amid dissident drama

Clinton's prepared remarks for the meeting did not specifically mention Chen, but did say that the responsibilities of a "great nation" included "protecting the fundamental freedoms of all citizens at home."  

"All governments have the responsibility of addressing their citizens' aspirations for dignity and rule of law.  These are not Western values -- they are universal rights that apply to all people in all places," she said.

Blind activist: Chinese officials threatened my wife

She also talked about North Korea, Iran, Syria, and the Sudan-South Sudan conflict, describing them as "four hotspots" that "are some of the most pressing challenges we face."

Guo Yushan – who was released by police two days ago after helping Chen get to Beijing -- said in a posting on Twitter that on Chen’s first day in the hospital “some unpleasant things happened, bringing some inconvenience and misery to him and his family, making them feel anxious and nervous.” 

Blind dissident's case a 'hot potato' for US-China relations

“Among all these things, he worried most about the threat from some Shandong officials to his wife Yuan Weijing,” Guo said, according to a translation. “He hopes that, under massive attention from global public opinion, the Chinese government can abide by the law and deal properly with Shandong local officials' illegal persecution on him and his family.”

Guo said that his friend was “very grateful to the world media's attention and care, and hopes that the media can understand his current complex and delicate situation, and completely understand and respond to his expression and the corresponding emotions.”

“He did not want to make all his friends who helped him, and are helping him, feel embarrassed and have misunderstandings, for example, the U.S. Embassy's help in the past, he never criticized it, on the contrary, he is only grateful for it. Thank you everyone,” Guo said.

Guo declined to comment to NBC News.

Gu Bo, of NBC News, other NBC News staff, and The Associated Press contributed to this report.

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NEWS ANALYSIS

BEIJING – Wednesday’s conclusion of the National People’s Congress seemed to signal the end of Prime Minister Wen Jiaobao’s chapter in Chinese history.

It’s been widely reported though not yet confirmed that Wen—along with President Hu Jintao—is due to step down later this year. 

But little did we know Wen would take the opportunity to carry on a tradition enjoyed by his meddling predecessors: publicly shaking up the political field one last time and consequently sparking the biggest political scandal the nation has seen in years.

At his final press conference yesterday, the senior Chinese leader caused a stir when he criticized the leadership of Chongqing, one of the world’s largest municipalities, for its handling of the Wang Lijun incident, when the former deputy mayor of the western megacity allegedly tried to defect to the United States.

Shattered leadership dream
The comment was viewed as an ominous sign for the future of Chongqing’s Communist Party secretary, Bo Xilai -- Wang's former boss. Bo, a tough but charismatic crime-fighting politician rapidly became a national figure through self-promotion more often associated with Western politicians.

In particular, Bo’s ruthless crackdown on organized crime in Chongqing and his promotion of Communist rhetoric and values through vehicles like “red songs,” soon gave him a national following that seemed to position him for ascension to the ultimate seat of power: China’s nine-member standing committee, which will be selected later this year.

That dream shattered this morning.

Fall from grace: China leadership contender Bo Xilai sacked

China’s state news service, Xinhua, issued a terse statement announcing that Bo had been replaced by Zhang Dejiang – currently vice premier of China’s state council – as Chongqing Party chief.

The announcement of Bo’s fall from grace was a bombshell for China’s public, who rarely get such a clear look at the political battles Chinese leaders prefer to fight behind closed doors. Bo’s dismissal quickly became the top trending topic on China’s Twitter-like service, Sina Weibo, generating an astounding 4 million tweets in the hours following the announcement.

While some netizens were quick to mock the alleged corruption of a supposedly virtuous politician, others were quick to defend Bo, whose campaign against organized crime captured the imaginations of disenfranchised people nationwide.

“I just want to have a safe and stable life… Bo gave us hope,” wrote one person on Weibo.

Si Weijiang, a Chinese lawyer, countered,  “There's no need to be happy....Sometimes people do need what the leftists offer.”

It’s a dramatic political fall for the 62-year-old Bo, who just weeks before appeared to be on the cusp of becoming part of the Communist Party elite.  

Ng Han Guan/AP

Bo Xilai, is pictured at the recently complete National People's Congress. Bo was removed today from his position as Chongqing Party Secretary.

Rapid rise to top
The first public sign of faltering emerged when his vice-mayor Wang Lijun spent the night at the U.S. consulate back in February. It was widely believed that he was seeking refuge after coming under a government investigation for corruption.

Prior to becoming vice-mayor, Wang had spearheaded Bo’s signature political moment: a three-year campaign against criminal gangs in Chongqing that resulted in thousands of arrests and 13 executions. Dubbed the “Smash Black” campaign, the stunt was warmly received by Chongqing’s citizens, who had long bristled at the brazenness of organized crime in the region.

Despite the acclaim that came with their success in smashing organized crime in Chongqing, the two were not immune to criticism. Like so much here in China, the line between business and governance was blurred, and Wang soon found himself embroiled in an economic war between two local moguls.

When one of the Chongqing businessmen was arrested earlier this year, the man claimed he had an audio tape of Wang threatening him and warning him to leave the other mogul alone.

Wang was soon the focus of an investigation that threatened to bring an end to his political career. The very fact that the inquiry was allowed to happen – an act that can only occur with specific authorization from the highest levels of the Communist Party – may have signaled to Wang that his fate was sealed.

He snuck off to the U.S. Consulate in Chengdu, where both Chinese and embassy officials confirmed he spent the night before leaving on his own accord. However, officials on both sides have declined to comment on what was discussed between Wang and U.S. consulate officials that night.

Nonetheless, the slightest possibility that Wang might have revealed sensitive secrets about the Communist Party’s inner workings was not only a massive embarrassment to his boss Bo – who had handpicked Wang as his right-hand man years before – but also a crisis that made Bo a potential political liability with China’s greatest economic rival, the United States.

The incident also opened Bo up to criticism from the ruling elite’s more liberal factions who were outraged by his anti-crime campaign, the manner of which critics say demonstrated a blatant disregard for the criminal process.  In addition, his embrace of leftist policies in everyday life through “red songs,” text messages and a friendly approach to state-owned enterprise helped paint Bo as a polarizing threat to China’s liberalizing voices.

And it appears that Wen Jiabao may have shared those concerns.

Charismatic as he is controversial, Bo had been a wildcard with the potential to alter the dialogue in China’s influential nine-member standing committee, which sets economic and social policy for the nation.

Bo’s dismissal means that a potential voice of opposition to the economic and social map that Wen and Hu have laid the groundwork for over the past eight years has been removed.

Proving once again that in the world of Chinese politics, national stability reigns supreme.

NBC News’ Bo Gu and Isabella Zhong contributed research to this report.

Alexander F. Yuan / AP

Military delegates arrive for the opening session of the annual National People's Congress at the Great Hall of the People in Beijing, China on Monday.

BEIJING – With massive security in Beijing during the annual National People’s Congress, it would seem like a risky time to protest in China’s capital, but for Guan Youming, it’s the best time.

Nearly 3,000 members of the ruling Communist Party gathered in the Great Hall of the People on Monday for the start of the annual meeting amid tight security throughout the city. Premier Wen Jiabao delivered his equivalent of a state-of-the-union speech to the group, setting out the government’s strategy for the coming year.

In addition to economic and military policy, a prominent goal he mentioned was the need to manage major sources of domestic discontent by protecting farmers’ rights and improving rural governance.

Farmers’ rights to their land “must not be violated,” Wen told the politicians, just a day after unprecedented democratic elections in the southern Chinese village of Wukan, which has become a symbol of successful revolt against land grabs and corruption.

You would think that Wen’s words would be music to the ears of Guan, a farmer from central China who made light of his 500-mile journey to brave tight security in Beijing and expose what he claims is illegal confiscation of his land by village authorities.

But Guan was not impressed. “I don’t necessarily believe in what the leaders says, I want to see results,” he told NBC News as he recounted his years of work to try and seek justice for his claim.

Andy Wong / AP

A Chinese police officer drags away a protesting woman after a flag raising ceremony on Tiananmen Square across from where the National People's Congress is held, in Beijing, China on Monday. The cause of the incident was not known but authorities have tighten security of the area around the Great Hall of the People where the annual legislature meetings are held this week.

Season of discontent
With China’s booming real estate industry, residential and land prices have skyrocketed and land disputes have become a major cause of mass protests. According to a report by Tsinghua University Professor Sun Liping last year, the number of protests, riots and strikes have doubled over the last five years to almost 500 a day.

And land grabs cause more than 65 percent of rural “mass incidents,” or collective protest actions, according to Yu Jianrong, a leading expert on rural conflicts at the Chinese Academy of Social Sciences.

Reports have estimated that nearly 50 million Chinese farmers have lost their homes during the past 30 years of industrial and urban growth; and that some 60 million more could be further uprooted with accelerated urbanization in the next few years.

Wen promised a better deal for farmers this year, with measures to improve rural incomes and protect farmers’ rights as a “top priority.”

“Farmers’ rights to the land they contract to work on, to the land on which their houses sit, and to proceeds s from collective undertakings are property rights conferred by law, and these rights must not be violated by anyone,” declared Wen during his two-
hour address.

He vowed “better supervision” and “regulation concerning compensation” for farmers in the course of land transfers and expropriations, in a clear signal of a government drive to address the crux of rising rural discontent.

‘Airing dirty laundry in public’
 “From my experience,” Guan said, “the sweeter the words, the more false they are.”

Guan hails from the farming village of Daqiao in Hubei province, where he said local leaders have “illegally” expropriated farmland to build government offices, commercial apartments and roads. Thousands of villagers have been affected, and many have not been adequately compensated, according to Guan, who also said that five fellow villagers have bravely joined him in Beijing to press for their case.

The last straw for Guan was when his quarter acre of farmland – what he said was his “only source of food” – was taken away.  He said he sought the help of various government departments but hasn’t gotten any response.

Asked why he chose this time of tight security in Beijing during the parliament session to make his case – when protesters and petitioners from rural provinces are routinely rounded up or forcibly returned to their villages. Guan said it was a deliberate decision to “exert pressure on leaders.”

“We are seeking out the Western and Taiwan media to explain our plight,” he said.

“Only by doing so can we expect the leaders concerned to pay attention because they are scared of airing our dirty laundry in public,” he explained.

In order to verify Guan’s claims, NBC News reached out to Wu Mingjing, party leader of Wuxie City which oversees Guan’s village.

“No, it’s impossible to for his land to be confiscated,” said Wu. “We have laws and regulations concerning land expropriation and compensation,” he explained, adding that he was not very clear about the details of Guan’s case.

With Guan listening to the telephone conversation, Wu suggested that the Daqiao villagers bring their case to the attention of a local party secretary, with the assurance that “proper action” will be taken.

Guan was not so sure – perhaps Wen’s promises would trickle down after all.

Researcher Isabella Zhong contributed to this report