China’s Politburo ‘insists’ on zero-Covid, omits mention of GDP growth target

China’s top leadership defended its zero-Covid policy in a tone-setting economic conference on Thursday, making it a political priority while calling for a long-term perspective on pandemic control and economic growth ahead of the 20th party congress later this year.

However, the 25-member Politburo, which is headed by President Xi Jinping, softened its language on achieving the full-year growth target of “around 5.5 per cent”, which is looking increasingly distant due to periodic coronavirus outbreaks, global recession risks and trade tensions.

In its quarterly assessment of the economy, the Politburo made it clear that it wanted to strike a balance between Covid control, economic growth and development – a message unchanged from its April meeting, despite underwhelming growth in the second quarter.

“We must review the relationship between pandemic control and economic development comprehensively, systematically and with a long-term perspective,” the official Xinhua News Agency reported on Thursday, citing the Politburo statement.

“Particularly, it must be reviewed from a political point of view and with political calculations.

“Dynamic zero-Covid must be insisted on. Strict control measures must be put in place immediately after the pandemic outbreak. There must be no slackness or tiredness.”

Beijing has clung to its rigid pandemic controls when much of the world has moved to live with the virus, citing its duty to save lives.

But the policy has taken a heavy toll on the world’s second largest economy, and was one of reasons given by the International Monetary Fund when it lowered its 2022 global growth forecast to 3.2 per cent from 3.6 per cent.

The Politburo statement said China should keep economic performance within a reasonable range, adding all regions and leading party cadres must “strive for the best outcome”.

“Major economic provinces must bravely take the lead,” the statement said. “Other provinces, if possible, should strive to achieve the expected goals of economic and social development.”

Wang Dan, chief economist with Hang Seng Bank China, said the Politburo meeting was “crystal clear” that the top priority is Covid control, and the 5.5 per cent growth target – which was made before China’s Omicron outbreaks, the Ukraine war and aggressive US rate hikes – could be shelved.

“The central government is also clearly aware that the downward economic risks cannot be merely addressed by loosening monetary policy or fiscal policy,” she said.

“It emphasised stability, especially on employment, but refrained from underscoring the growth target, so as to avoid risks of increasing debt and destabilising the financial system, which are definitely not wanted by the leadership.”

Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank, said the meeting ruled out major easing of pandemic controls this year but “signalled precise controls and marginal loosening”.

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Job creation and stability for the 20th party congress still require a certain level of economic growth in the second half of the year at around 5 to 6 per cent, he said.

The ruling Communist Party will install a new generation of leaders at the party congress later this year.

The Politburo statement comes at a delicate time for China’s economy, after growth plunged sharply to 0.4 per cent in the second quarter and the risk of imported inflation is increasing.

It also followed another 75 basis point interest rate hike by the US Federal Reserve.

Despite the mounting headwinds, China has refrained from an all-out stimulus to shore up economic growth.

Instead, it has taken a proactive stance to expand demand with local special-purpose bonds, ample liquidity, credit support and a newly established infrastructure investment fund, according to the statement.

Julian Evans-Pritchard, senior China economist with Capital Economics, said the Politburo statement reiterated the need for more policy support but stopped short of any major new announcements and largely rehashed existing policy pledges.

He added it signalled there will not be massive stimulus “just to hit the national target”.

Economists have warned any more large-scale lockdowns, like that seen in Shanghai over April and May, would be detrimental for economic recovery this year.

The State Council, the country’s cabinet, said last week that the third quarter is crucial for China’s economy.

In addition to front-loading of infrastructure projects to boost employment and economic growth, policymakers are trying to stabilise the property market with new tools for local authorities, who have been ordered to ensure delivery of commodity housing units.

Meanwhile, the Politburo said coronavirus variants and vaccine research must be closely tracked.

Additional reporting by Luna Sun, Orange Wang