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BEIJING — China’s central bank cut interest rates on Monday to shore up slowing economic growth at a politically sensitive time as President Xi Jinping seeks to expand his power.
The decision indicated that Beijing is temporarily putting worries about high debt aside to act to stave off a slump before Xi is expected to seek to grant himself a third five-year term as Communist Party leader at a meeting this fall .
The ruling party has effectively conceded it cannot meet this year’s official growth target of 5.5% after antivirus disrupted trade, manufacturing and consumer spending. A crackdown on excessive borrowing in China’s huge real estate industry triggered a slump in home sales and construction activity.
“The momentum of economic recovery has slowed,” a government spokesman, Fu Linghui, said at a news conference. “Further efforts are needed to solidify the basis of economic recovery.”
The People’s Bank of China cut its interest rate on one-year loans from 2.85% to 2.75% and injected an additional 400 billion yuan ($60 billion) into credit markets after growth in factory output and retail sales slowed in July and home sales fell by double digits.
The central bank “seems to have decided it now has a more pressing problem,” Capital Economics’ Julian Evans-Pritchard said in a report.
The slowdown is contributing to political headwinds for Xi, China’s most powerful leader since at least the 1980s. He is still widely expected to be successful, but some analysts say he may be forced to compromise by sharing more of his wide-ranging powers with other party leaders.
Despite the downward pressure on growth, party leaders reiterated their commitment to the strict “zero-COVID” strategy in a July 29 statement. Earlier references to growth targets were dropped after the economy grew just 2.5% year on year in the first half of 2022.
Factory output growth slowed to 3.8% more than a year ago in July, down 0.1 percentage point from the previous month, according to the National Bureau of Statistics. Consumer spending growth fell 0.4 percentage points from June to 2.7%.
Sales of apartments and other commercial real estate fell 28.8% year-on-year.
Beijing is forcing developers to deleverage, causing economic growth to slump in mid-2021 and disrupting the recovery from the coronavirus pandemic. The crackdown has bankrupted smaller developers and fueled fears of a default by the largest Evergrande Group, which owes $310 billion to banks and bondholders.
The “downward trend” in real estate has “great implications for economic growth,” government spokesman Fu said.
The rate cut and extra money to lend are small compared to China’s $17 trillion annual economy, the second largest in the world. Instead, such changes are widely seen as a signal for the state-owned banking industry to lend more and lower fees for commercial borrowers.
The ruling party is scrambling to revive activity after Shanghai, the country’s business capital, and other industrial hubs were shut down for weeks from late March to combat virus outbreaks.
Managers at the port of Shanghai, the world’s busiest, say shipping is back to normal, but economists say it could take months for the flow of smartphones, appliances, consumer electronics and other goods through complex supply lines to fully recover.
A previously released survey of manufacturers showed activity slowed in July. The indicators for incoming orders, exports and employment fell.
Retail sales fell 0.7% year on year in the first half after plummeting 11% in April following the temporary shutdown of Shanghai and other cities.
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