China unveils $44 billion in new support to shore up battered economy

China unveils $44 billion in new support to shore up battered economy

Beijing has announced tens of billions of dollars in stimulus measures in a bid to boost confidence as China’s economy is hit by a sharp slump in the real estate sector and President Xi Jinping’s stifling Covid-free policies.

The State Council, China’s government, has added 300 billion Rmb ($44 billion) in credit support to its policy banks, the state institutions used by Beijing to spur economic growth, according to an official announcement late on Wednesday.

“This will expand effective investment, boost consumption and help keep economic activity on a steady course,” said Chinese Premier Li Keqiang, who has overall responsibility for the world’s second largest economy. economy.

The latest efforts highlighted that Beijing is trying to walk the walk as it tries to take advantage of the central government stimulus and looser monetary policy stop the slowdown in growth while avoiding burdening the country with even more debt.

But the measures, which analysts saw as incremental rather than transformational, also confirmed Xi’s directive to prioritize the fight against health risks posed by the pandemic over the economy.

The State Council statement said that while “the foundations of economic recovery are not firm,” China will avoid “resorting to massive stimulus or jeopardizing long-term interests.”

Still, Li called on China’s local governments to increase the use of more than Rmb500 billion in funds already made available through increased bond issuance. Beijing has also pledged 200 billion Rmb in bond issuance by state-owned power groups.

The State Council will deploy special task forces to oversee local authorities and said detailed implementation plans should be prepared before October.

“We should accelerate the delivery of policy measures. The central government will provide assistance and the sub-national authorities [will be] in charge of policy implementation,” Li said.

Many analysts remained concerned because of the deep structural risks posed by the collapse of China’s real estate sector, which accounts for nearly one-third of gross domestic product. Fears of a horde of cash-strapped real estate investors, including Evergrande, which has more than $300 billion in liabilities, have slowed the economy’s recovery from the initial shock of the pandemic.

Xi’s refusal to back down from his controversial zero-Covid policy, which includes the institution strict lockdown and mass testing wherever virus outbreaks are detected, it has eroded consumer confidence and crippled more productive service sectors.

Some investors and economists have called for more aggressive stimulus as well as longer-term structural reforms to address China’s slowing growth trajectory. Beijing has set its lowest growth target in three decades this year at around 5.5 percent.

Goldman Sachs did not change its forecast of “slow” GDP growth of 3 percent this year after the announcement of the latest measures.

Analysts at the bank said the stimulus “could help offset the sharp decline in government revenues and to some extent support growth in infrastructure investment in the coming months.”

But, they added, “with a very weak real estate sector and headwinds to activity growth from local Covid outbreaks and related containment measures, apart from major policy easing measures, we think overall growth will remain sluggish for the remainder of this year.”

“The reading used the phrase ‘no deluge of easing and no deleveraging going forward’, suggesting that any stimulus would likely be moderate in relation to the extent of the economic slowdown.

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