China debt: is Beijing using a ‘shadow stimulus’ to shore up flagging economic growth?
- Analysts say Beijing is turning to local government borrowing and regional banks to shore up growth, rather than conventional fiscal and monetary policy
- But Beijing’s zero-Covid target – which relies on lockdowns, mass testing and quarantines – is putting enormous pressure on regional finances
As China doubles down on its drive to eliminate the coronavirus, it is increasingly relying on local governments to shore up growth amid deteriorating financing conditions for regional economies.
Several international institutions have already reduced growth estimates to below Beijing’s target. Last month, the International Institute of Finance on Tuesday revised down its 2022 growth forecast for China to 3.5 per cent from 5.1 per cent, citing virus restrictions that have weighed substantially on growth.
The International Monetary Fund last month also cut China’s GDP growth estimate for 2022 from 4.8 per cent in January to 4.4 per cent.
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China aims for modest 5.5% GDP growth in 2022, citing economic pressures
Andrew Collier, managing director of Orient Capital Research, believes Beijing is in favour of a “shadow stimulus” via local government borrowing and regional bank loans to shore up growth, rather than conventional fiscal and monetary expansion.
“That’s precisely the question that we – and Beijing – are struggling with. So far, they’ve been toughing it out by not providing a big stimulus,” he said.