As China vows to boost economy, crippling zero-Covid policy may be ‘more zealously implemented’

Premier Li Keqiang vows more economic support measures after provincial investigations, cites ‘slight fluctuation’ in China’s economic recovery
Appearance by Vice-Premier Sun Chunlan, in charge of China’s virus-control measures, at special cabinet meeting brings hope of better coordination between virus control and growth objectives

China's economic recovery

Frank Tangin Beijing

Published: 8:00pm, 13 Sep, 2022

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China continues to step up its unconventional policy tools to keep the national economy churning while trying to mitigate the damage from its zero-Covid policy, as control measures remain high on Beijing’s agenda ahead of the 20th party congress.

Premier Li Keqiang has been busy in recent months trying to steer the world’s second-largest economy away from a hard landing, including by convening a conference of more than 100,000 local cadres in late May, as well as dispatching 16 provincial inspection teams last month to implement Beijing’s stabilisation policies.

And at a special meeting of the State Council on Thursday to discuss the ministers’ report on the inspection tour, Li vowed to further expand investment to create more demand and lift confidence amid a “slight fluctuation” in China’s economy as it recovers.

“We must continue to introduce policies and measures to boost consumption and investment and ensure that they are released quickly and implemented thoroughly,” Li said, according to details of the meeting that were released by state media on Monday.

Peak season goes bust for some Chinese exporters amid ‘plummeting’ demand

Following the publication of Li’s comments, Shanghai’s benchmark index rose by 0.05 per cent on Tuesday after a long holiday weekend that saw reduced travel and spending across the country.

Li, who chairs the State Council, China’s cabinet, has tried to reduce coronavirus disruptions, including by telling local authorities to increase their support for market players, to ease travel restrictions, and to step up economy-boosting construction projects.

While the provincial inspection teams – headed by central bank governor Yi Gang, finance minister Liu Kun and other officials – were ordered to continue tackling local economic problems, a new batch of inspections will also soon be carried out.

Such efforts came as the National Health Commission reported 188 new locally transmitted cases and 727 asymptomatic cases on Monday – the latest sign of the virus showing a resurgence in China.

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Panic buying in Chengdu as China locks down another megacity to contain Covid-19 spread

More than two dozen Chinese cities have scrambled to impose certain mobility restrictions to curb the spread of the highly contagious Omicron variant of the coronavirus. Such moves inevitably affect local contact-intensive services and consumption.

And in particular, major cities such as Chengdu and Shenzhen, which had been expected to be drivers of China’s economic recovery, are also being hit hard.

Lockdown and travel restrictions have proven to be catastrophic to China’s economy. The national commercial hub Shanghai, which was locked down in April and May, reported a 13.7 per cent year-on-year fall in its second-quarter gross domestic product, while the whole country saw its quarterly growth falling to 0.4 per cent from 4.8 per cent in the first quarter.

Alicia Garcia-Herrero, Natixis’s chief economist for the Asia-Pacific region, said this year has been particularly difficult because stubborn zero-Covid policies have ground the economy to a halt, and the real estate bubble burst.

Covid-containment efforts are likely to be more zealously implemented over the coming weeks, despite the damage to [China’s] economy

Capital Economics

“It seems clear that Chinese policymakers need to react with more stimulus,” she said. “Both fiscal and monetary policies are already laxer than last year, but they are clearly not enough to bring the growth rate back to the desired path.”

The 25-member Politburo, headed by President Xi Jinping, downplayed the 2022 growth target of “ around 5.5 per cent” at its quarterly meeting in July, insisting on a fine balance between growth, security and coronavirus controls.

Some investment banks have accordingly lowered their estimates on China’s yearly growth, including to 3.3 per cent by Standard Chartered Bank; to 3 per cent by Goldman Sachs and UBS, respectively; and to 2.8 per cent by Nomura.

“The party congress also means that Covid-containment efforts are likely to be more zealously implemented over the coming weeks, despite the damage to the economy,” said London-based Capital Economics. “Early indicators suggest that China’s economy was even weaker in August than it was in July, when the rebound from the Shanghai lockdown prematurely fizzled out … The economy is likely to remain very weak until the end of the year.”

China flags greater economic help as firms face ‘more difficulties’ than 2020

The State Council rolled out 19 new economic support policies late last month, with a stimulus package totalling 1 trillion yuan, plus a 10-basis-point cut to a key policy interest rate.

The appearance of Sun Chunlan, the vice-premier in charge of virus-control measures, at Thursday’s cabinet meeting also brought hope of better coordination between virus control and growth objectives.

“We must resolutely rectify excessive policies and the one-size-fits-all approach to minimise the impact on the work and life of the masses,” she said on Friday at a separate meeting of the cabinet’s pandemic-control group, according to Xinhua.

Sun, the only woman on the 25-member Politburo, has been a loyal implementer of the country’s pandemic control policies, such as the lockdown of Wuhan when coronavirus cases were first reported in early 2020, and of Shanghai earlier this year.

Beijing has taken small steps in reducing the quarantine period for incoming visitors, as foreign investors have been extremely vocal about business disruptions and a loss of talent.

Meanwhile, most of the rest of the world reopened markets and borders after widespread vaccinations, choosing to live with the virus.

However, pandemic control measures remain as tight as ever in the lead-up to China’s 20th party congress. On Tuesday, Sanhe, a commuter town of 300,000 people east of Beijing, announced a days-long lockdown after one coronavirus case was discovered.

Beijing is due to release August economic data on Friday and its third-quarter data on October 18 – two days after the opening of the party congress.