Virendra Pandit
New Delhi: Worried over the deceleration for the first time in four decades, China has started measures to pump in an additional one trillion yuan (USD 146 billion) to rescue its sagging economy and bolster growth.
Stepping up measures to curb the fallout of repeated Covid-19 lockdowns and the unprecedented crisis in the real estate sector, Beijing is trying to bring its economy back on rails, the media reported on Thursday.
Apart from the global slowdown because of the pandemic and the Russian war on Ukraine, President Xi Jinping’s ‘zero-Covid’ policy has obstructed the growth curve. Several Chinese banks inflated loan numbers amid a struggle to meet the government’s demands, while some banks seized deposits of the people, sparking widespread discontent among depositors.
Amid speculation about President Xi Jinping’s dimming chances to secure a third term because of the economic downturn, the State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced in June. The media reported they will allocate local governments 500 billion yuan of special bonds from the previously unused quota.
At a meeting chaired by Prime Minister Li Keqiang, the State Council vowed to use “tools available in the toolbox” to maintain a reasonable policy scale in a timely and decisive manner, state broadcaster China Central Television (CCTV) said.
The Council also said they would not flood the economy with excessive stimulus, and China would not overdraw on its future policy room, as it did early this year.
Since the outbreak of Covid-19 in 2020 worldwide, China has been facing a hostile atmosphere globally, and its trust deficit in international affairs is unprecedented. Most of its efforts to contain the pandemic’s fallout have failed, debt traps in countries like Sri Lanka have exposed its doubtful objectives and cautioned the world about its USD 200 billion Belt and Road Initiatives (BRI).
This global loss of face, coupled with its threats to Taiwan, has further widened fissures between China and the rest of the world. Beijing’s stop-start reopening from Covid lockdowns and a yearlong property slump has also weakened growth, putting the government’s official goal of “around 5.5%” unreachable. Economists say China will probably end the current financial year with less than four percent growth.
The latest steps “could help offset the sharp contraction in government revenue and support infrastructure investment growth… but the overall growth will remain sluggish” because of the very weak property sector and Covid controls’ disruptions.
The 19-point program tops several recent stimulus steps: they have allocated policy banks 1.1 trillion yuan of financing for infrastructure projects since June; the central bank delivered a surprise ten basis-point interest rate cut last week; and in May, Beijing announced about 1.9 trillion yuan of support measures in a 33-point policy package, including targeting small businesses.
The State Council also approved several infrastructure projects and asked the local officials to use city-specific credit policies to support reasonable housing demand.
Like many other countries, China is facing drought, it is trying to support state-owned power generation companies, allowing them to sell 200 billion yuan of bonds. It will also offer another 10 billion yuan of subsidies to the agricultural sector.