China has unveiled a new round of stimulus measures to stabilize the economy and support businesses, but analysts say the actual impact may be limited if the stringent zero-Covid policy remains unchanged. A 33-point package of policy items will help “get the economy back on a normal track” while keeping major economic indicators within an appropriate range, press agency Xinhua reported following a meeting of the State Council chaired by Premier Li Keqiang. Many analysts have warned that it will be difficult for China to achieve its economic growth target of “around 5.5%” for the year while sticking with strict coronavirus-control measures. Extended lockdowns across the country have taken a heavy toll on livelihoods and consumption, putting many people out of work, shuttering businesses and suppressing both supply and demand.
“Power generation, freight volumes and bank loans have all declined since April. Without a certain level of GDP growth, stable employment cannot be realized,” Li warned. “One good thing is that we refrained from excessive money supply and mass stimulus in the past few years, and we still have policy tools in reserve,” he said. The latest stimulus measures include greater financial relief for more industries via tax refunds, tax cuts and fee reductions. These will bring the government’s total planned tax refunds and reductions to CNY2.64 trillion for 2022. Banks will also double the lending quota for small and micro-sized businesses. The government will also support banks by allowing borrowers of various types of loans to postpone principal and interest repayments until the end of this year. Some measures are aimed at boosting consumption, especially by easing car and home purchases. There will be a reduction of at least CNY60 billion in the purchasing tax on some passenger cars, while more city-specific policies will be adopted to boost housing demand.
Such measures will help alleviate the severity of the economic growth slowdown, or even a contraction, according to economists from Nomura, but they remain cautious on growth prospects for the year. “In our view, adjusting the zero-Covid strategy will be key to any real growth rebound in the coming months,” they said. Nomura estimated that China’s second-quarter GDP growth will slow significantly to 1.8%, which would be a sharp drop from the 4.8% rise in the first quarter. They now predict that China’s full-year economic growth could slow to 3.9% – well below the “around 5.5%” target.
The State Council also announced support for infrastructure, railways and airlines, including the issuance of CNY300 billion worth of railway construction bonds; CNY200 billion in bonds for aviation; and CNY150 billion in emergency loans to the civil aviation industry, while also launching a new round of rural road construction and renovations. But the Nomura economists said such fiscal spending will be less efficient amid lockdowns and mobility restrictions across the country, and they flagged a smaller-than-usual multiplier effect from fiscal spending, due to weak private-sector sentiment. “We expect little additional fiscal spending from these new measures, owing to a likely sharp decline in fiscal revenue and land sales,” they added.
However, Iris Pang, Chief Greater China Economist at ING Bank, said more fiscal stimulus measures could be in the works. “As Shanghai has not completely unwound its lockdown measures, and Beijing has tightened distancing measures in some districts, we expect that there could be more fiscal stimulus as the government seems to want to avoid monetary easing, on concern that the leverage ratio for the whole economy will go up,” Pang said in a note. The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) also met to discuss the monetary and credit situation. They stressed that the financial system should “make full use of various policy tools” to “support high-quality economic development with moderate credit growth”, the South China Morning Post reports.
The State Council on May 25 also held an unprecedented national video teleconference on stabilizing the economy with upwards of 100,000 participants, stressing the need to better implement measures to safeguard market entities, employment, people's livelihood and keeping the economy operating in a reasonable range. Premier Li Keqiang further noted that development is the basis of and key to resolving all of the country's problems, while calling for an effective coordination of virus containment and economic and social development. Stabilizing growth needs to be given a higher priority as the country focuses on ensuring market entities, employment and people's livelihoods, the Premier stated. The meeting was presided over by Vice Premier Han Zheng. Also attending the meeting were Sun Chunlan, Hu Chunhua and Liu He, the other three Vice Premiers. Wang Hao, Governor of Zhejiang province, vowed to press ahead with the province's implementation plans for the 33-item stabilization policy, ramp up the local economy's return to normal and make the province's due contribution to stabilizing the economy at large.
Premier Li said during the teleconference that the number of domestic and international flights must be increased and arrangements must be made to facilitate the travel and exchange of personnel from foreign companies. He also instructed the more than 100,000 officials from across China to use whatever resources they have to stabilize the economy as the zero-Covid policy remains in effect. He has also conceded that China’s economy is stalling at a dangerous rate and faces critical risks, and for the first time, Li admitted that China may miss the “around 5.5%” economic growth target. He added that a realistic target for the year’s second quarter is simply to get the economy back on a growth trajectory. “We should make efforts to ensure positive economic growth for the second quarter. The target is not high, and it falls far short of the 5.5% growth target set out earlier this year,” Li said.
The State Council dispatched a task force to 12 provinces to oversee local governments' policy implementation and the rollout of supplemental measures, the Premier disclosed. It is expected that local governments will introduce intensive policies to support the resumption of work and production, as well as policies to protect employment, and to effectively coordinate epidemic prevention and control with economic and social development.
