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A Chinese government think-tank has warned that rising food and property prices are causing discontent among a majority of the country's urban poor.

The rare admission comes in a report from the Chinese Academy of Social Sciences, which also estimates that 1m recent graduates are still unemployed.

Low-income city dwellers and rural farmers are struggling to make ends meet, the report says.

But, it says, 700m rural peasants have benefited from increased crop prices.

The academy has been producing such reports for 16 years but according to Shirong Chen, the BBC's China Editor, the admission that the majority of urban residents are dissatisfied with life is a new development.

The authors of the report say this dissatisfaction is due to rising food and property prices which reached 10% in some cities towards the end of last year.

Analysts say that food prices have risen, in part, because production in the countryside has not been able to keep up with the demand coming from increasingly wealthy cities.

While the rising cost has been good news for farmers, the authorities fear it could cause social unrest in cities as salaries fail to rise in proportion.

Graduates unemployed

The report also warned that 20% of people who graduated from Chinese universities in 2007 had yet to find a job.

Students attend their graduation ceremony at Tsinghua University in Beijing (file photo)
High graduate unemployment rates are worrying for Chinese authorities

This is of particular concern for the authorities as a million well-educated but unemployed people would be in position to spread social discontent.

Yang Yiyong, deputy head of the National Development and Reform Commission's Socio-Economic Research Institute, said that graduate unemployment was due to problems with the higher education system, not the students themselves.

Students are expected to learn their subject by rote, which, Mr Yang said, meant they had no entrepreneurial spirit.

"We need to change it to put more emphasis on creative education," he told Reuters news agency.

Shirong Chen said that as China geared up for the summer Olympics, it hoped to present an image of a harmonious society to the outside world.

The report, he said, showed that this was a long way off.