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China’s economy grew by 0.4 per cent in the second quarter, compared with a year earlier, down from the 4.8 per cent growth seen in the first three months of the year. Photo: AFP

China rules out ‘excessive stimulus’ to save economy, but Li Keqiang vows to refine coronavirus policy

  • Premier Li Keqiang tells World Economic Forum that China will not employ large-scale stimulus to hit economic growth targets, but will adjust coronavirus policy
  • His comments to international business leaders come amid fresh concern about the economic toll of zero Covid and frustration among foreign firms in China

China has sent a clear signal that large-scale stimulus will not be employed to hit its growth goal this year, but it will maintain targeted macro policies, while refining coronavirus controls to soothe foreign investor fears.

“We won’t resort to super large stimulus or excessive money printing to accomplish a high growth target. That will overdraw on the future,” Premier Li Keqiang said on Tuesday at a virtual dialogue hosted by the World Economic Forum with nearly 400 global business leaders.

“We’ll try our best to achieve good results this year.”

Li’s comments come amid fresh concern about the toll of Beijing’s zero-Covid policy on the world’s second largest economy, with growth slumping to 0.4 per cent year on year in the second quarter and foreign companies becoming more frustrated with virus restrictions.

China’s economic growth plunges to 0.4 per cent, lowest in 2 years

Li’s speech could set the tone for China’s quarterly Politburo meeting, which is expected to be held next week to discuss the economy.

Tuesday’s event was attended by executives from some of the world’s biggest companies, including Airbus CEO Guillaume Faury, and Jian Lu, president of LinkedIn China. Business leaders expressed concern about the state of China-US relations, climate change, manufacturing prospects and China’s consumption policies.

Li, China’s No 2 political figure, said the government will adjust its coronavirus control measures to be more targeted and well-calibrated, promising to improve visa access, testing policies and increase international flights.

“All international students may return to China to continue their studies should they so wish, and outbound commerce and trade activities and cross-border travel for labour services will be advanced in an orderly fashion,” he was quoted as saying by the official Xinhua News Agency.

China will continue to pursue all-round opening to both developed and developing countries
Li Keqiang

China would also seek common ground in trade disputes, while keeping industrial and supply chains secure and stable, Li said.

“China’s market is also the world’s market,” he said. “China will continue to pursue all-round opening to both developed and developing countries … and promote free trade and fair trade.”

In May, amid heightened concern about the impact of lockdowns across the country, Li unveiled a package of 33 policies to support the economy, including fast tracking infrastructure projects and loan extensions for business, increasing tax breaks and rebates, encouraging car sales, and adding support policies by the end of this month. The government also pledged to be more receptive to foreign companies’ concerns.

Still, it was not enough to halt widespread damage to the economy in the second quarter, with the 0.4 per cent growth reading far lower than the 4.8 per cent notched up in the first quarter, and well below the full-year target of “around 5.5 per cent”.

China’s Covid slowdown raises spectre of middle-income trap

Gross domestic product (GDP) in Shanghai, which was locked down for two months in April and May, plunged by 13.7 per cent year on year, making it the worst performer among the country’s 31 provincial jurisdictions. The capital city of Beijing, where partial lockdown was imposed, reported a fall of 2.9 per cent over the same period.

A flash survey by the European Union Chamber of Commerce in China, which was completed by 372 firms between April 21-27, when Shanghai was part way through its lockdown, showed that 23 per cent of respondents were considering shifting current or planned investments out of the country.

US and British chambers have issued similar warnings about the impact of Covid-induced uncertainty on business confidence.

China’s foreign direct investment inflows have held up, however, growing 22.6 per cent to US$87.8 billion in the first five months of the year from the same period in 2021, according to the Ministry of Commerce.

Beijing’s strict virus control has complicated its testy relationship with the US.

Beijing is keen to try to keep American businesses in China onside while bilateral relations hit new lows, with Washington stepping up aggressive containment policies such as trade embargoes on sensitive technology, the Indo-Pacific Economic Framework and AUKUS, a security pact between Australia, the United Kingdom and the US.

China has recently relaxed some coronavirus rules, halving quarantine time for inbound travellers to seven days from late June.