China is signaling that no major stimulus is coming, while the Covid controls remain

China is signaling that no major stimulus is coming, while the Covid controls remain

A worker in a protective suit cleans the floor of a subway station after the lockdown put in place to curb the outbreak of the coronavirus disease (COVID-19) was lifted in Shanghai, China June 2, 2022.

Aly Song | Reuters

BEIJING – China’s top leaders signaled on Thursday that no major stimulus to economic growth was on the way, downplaying the need to achieve the “around 5.5%” GDP target.

In the second half of the year, the authorities said they would stabilize employment and prices, according to a state media reading from the leaders’ meeting on Thursday. Chinese President Xi Jinping chaired the economic meeting, held regularly with China’s leadership, known as the Politburo.

The loud talk of stabilizing prices indicates that there is likely to be no additional expansionary policy, Wang Jun, a director at the China Chief Economist Forum, said in a telephone interview. He noted high inflation abroad, and expected China to face greater inflationary pressures in the coming months.

One of the biggest stimulus announcements came in late May when China’s State Council, the country’s top executive, announced 33 economic support measures, ranging from tax refunds to infrastructure investment.

While Wang expected continued use of credit and local government bonds to support the economy, he said the authorities were unlikely to “force” 5.5% growth. That’s according to a CNBC translation of his Mandarin-language comments.

China’s gross domestic product grew by just 2.5% in the first half from a year ago, after the economy contracted in the second quarter. The country’s worst Covid-19 outbreak since 2020 locked down the metropolis of Shanghai in April and May, while related restrictions in other parts of China hit business activity.

Adheres to zero-Covid

On Thursday, however, China’s leaders signaled no change to the country’s “dynamic zero-Covid” policy.

“Regarding relonethe relationship between pandemic control and the development of the economy and society [we must] … take the long view, especially from a political point of view, calculate the political cost,” state media read from the Politburo meeting in Chinese, according to a CNBC translation.

The reading emphasized how local authorities should take a more localized approach, particularly on economic policy and solving problems in property.

“Provinces with the prerequisites to achieve the economic goals should strive for,” the reading reads.

Shanghai’s GDP fell 5.7% in the first half from a year ago, while Beijing’s grew just 0.7%, according to data available through Wind Information. The provinces of Shanxi, Jiangxi and Fujian were among the fastest growing, with at least 4.6% in the first six months of 2022.

The management meeting reflects “a more flexible and pragmatic attitude to [the] GDP target,” said Bruce Pang, chief economist and head of research for Greater China at JLL.

He estimated that this year’s city unemployment rate of 5.5% could still be achieved if the economy rebounds by about 5% or more in the second half of the year.

Property: A local matter

On real estate, the Chinese leaders stuck to their mantra that “houses are for living in, not speculation,” while stating that local governments are responsible for delivering finished houses.

Developers in China typically sell apartments before they finish construction, generating an important source of cash flow. However, recent construction delays have prompted many homebuyers in the past month to suspend mortgage payments, putting developers’ future sales at risk.

The meeting reading also noted how policies to solve real estate problems should not be the same in all cities, said Qin Gang, executive director of the China Real Estate Research Institute ICR.

Instead, he said the reading encouraged local authorities to take a local approach to supporting people’s purchase of a first home or an upgraded property.

The technical impact

In the internet technology that has hit companies from Alibaba to Didi, Chinese authorities again signaled that they were reaching a tipping point.

The reading of the Politburo meeting called for continued “healthy” development of the “platform economy” and “complete” the enterprises’ adjustments. The leaders also said that lists of permitted “green” investment areas should be published.

The reading said that the policy must also support business confidence, so that, among other things, foreign businesses “dare to invest.”

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