Despite lofty goals, China’s leaders sound concerned about the economy | business and economy

When Chinese Premier Li Keqiang called for a “sense of urgency” amid rising economic risks at a meeting with provincial officials earlier this week, it was his third such warning in days.

“We must be very alert to unexpected changes in the international and domestic situation, and the downward economic pressure has continued to increase,” China’s No. 2 official said Monday at a symposium in Jiangxi province, according to a report by the South China Morning Post. less than a week after he drew attention to the “complicated and evolving” global situation and COVID-19 outbreaks at home.

With China’s draconian “dynamic zero-COVID” pandemic restrictions and uncertainties, including the war in Ukraine, weighing on growth, Beijing appears increasingly concerned about the outlook for the world’s second-largest economy.

The uncertain outlook casts doubt on the ruling Chinese Communist Party’s ability to meet its target of 5.5 percent economic growth in 2022, even as state media insist the ambitious target remains within reach, raising risks for China global economy, including war in Europe, rising energy prices and imminent rate hikes in the United States.

And it begs the question of how far policymakers can go to meet Beijing’s lofty ambitions, negative economic consequences notwithstanding.

Shanghai’s ultra-strict lockdown is straining the economy and global supply chains [File: Aly Song/Reuters]

If COVID-19 cannot be brought under control quickly — which seems increasingly unlikely — then either Beijing’s zero-tolerance pandemic strategy or growth target will have to fall, said Carsten Holz, an expert on China’s economy and a professor at Hong Kong University of Science and Technology (HKUST).

“Faced with lockdowns, the old channel from government-directed lending to government-directed investment or production is becoming ineffective,” Holz told Al Jazeera. “A relatively lockdown-free rural sector cannot save the real GDP growth rate: Agriculture’s share of GDP is only eight percent.

“Industry, the largest sector of GDP, can’t either while there are lockdowns, neither can travel and hospitality,” Holz said.

According to a recent analysis by global investment research firm Gavekal, all but 13 of China’s top 100 cities by GDP are subject to some degree of pandemic restrictions, with the intensity of those controls increasing.

In Shanghai, a strict lockdown has forced manufacturers like Tesla and fellow automaker Nio to halt production and delay deliveries at the city’s port, the largest of its kind in the world, while sparking rare civil unrest among the metropolis’ 26 million residents.

In March, Chinese factories saw the fastest decline in activity in two years, while vehicle sales fell nearly 12 percent year-on-year.

“Life Above All”

Despite the rising costs, Chinese President Xi Jinping, who is running for an unprecedented third term at the next party convention in October, has repeatedly ruled out any departure from dynamic zero-COVID, insisting this week the country “should insist, people.” accommodate above all life above all.”

Amid a deteriorating economic outlook, Beijing has announced the accelerated roll-out of pro-growth measures such as tax cuts and rebates and the sale of special purpose bonds (SPBs) to finance infrastructure projects.

On Monday, China’s securities regulator announced it would urge long-term investors and major shareholders to buy up stocks in a bid to stabilize the country’s flagging stock market, which in March saw overseas outflows of $11.2 billion in bonds and $6.3 billion in US dollars. USD recorded in shares.

Many analysts expect more far-reaching measures, including rate cuts and looser lending rules, to follow in the near future.

“So far, Chinese leaders have been extremely cautious about stimulus, but if things continue as they are, Beijing may have no choice but to return to the infrastructure stimulus playbook to accelerate growth,” Joe Mazur, Politics and financial analyst at Trivium China, Al Jazeera said.

Taylor Loeb, financial and political analyst also at Trivium China, said economic conditions have reached the point where “support measures need to cast a wider net.”

“This means cuts in banks’ reserve requirement ratios (RRRs), a move that gives the financial sector more leverage over who it lends to,” Loeb told Al Jazeera.

“We are also seeing accelerated adoption of the SPBs, which typically fund local government infrastructure projects. SPB funds, like RRR cuts, risk ending up in unproductive projects — as happened in the 2010s — but that may be a risk key policymakers need to take to stimulate the economy.”

Holz, the HKUST professor, suggested that Beijing might take drastic measures to meet its goal, such as doubling the salaries of state and Communist Party employees.

“It would create a budget deficit on the order of about 20 percent, but that would not be fully visible until after the 20th National Congress of the Chinese Communist Party,” he said.

Chinese President Xi Jinping has ruled out moving away from a zero-tolerance approach to the coronavirus [File: Andy Wong/`]

Still, many economists are skeptical that anything in Beijing’s toolbox will be enough to stave off a significant slowdown in growth.

On Friday, Morgan Stanley lowered its growth forecast for the Chinese economy this year to 4.6 percent from 5.1 percent.

“The policy stimulus will not be as effective as long as mobility is restricted across the board,” Tommy Wu, chief economist at Oxford Economics in Hong Kong, told Al Jazeera.

“The government needs to reduce its emphasis on its growth target and be realistic about how domestic headwinds and a challenging external environment will affect China’s economy this year.”

If China’s opaque leadership cannot bear to adjust its economic targets, especially in what is a politically sensitive year, it may seek to change the narrative instead.

“Party Secretary Xi Jinping’s most likely calculation will be that the simplest solution to the conundrum is to blame COVID-19 for not meeting growth target, keep the death toll down with sweeping lockdowns, and secure his tenure as a party can secretary at the 20th party congress. The real growth rate of the PRC in 2022 could be anything, 0 percent or even negative,” Holz said.

“And should public discontent with lockdowns reach unprecedented levels, as long as he can present himself as the rational, well-meaning leader who deserves another term as party secretary and president, he could cite new scientific evidence and let the COVID wave roll.”