Chinese President Xi Jinping has offered state support for technology, infrastructure and jobs to revive the country’s economy, but analysts warn growth will continue to falter until Beijing lets go of its rigid controls against viruses.
Two and a half years after the outbreak of the coronavirus in Wuhan, China is the last major economy still closed in the world, despite its relatively low death toll.
Lockdowns in dozens of cities – from the manufacturing hubs of Shenzhen and Shanghai to the breadbasket of Jilin – have wreaked havoc on supply chains in recent months, crushing small businesses and trapping consumers at home.
This has jeopardized Beijing’s annual growth target of around 5.5%, with forecasters predicting that around a percentage point could be cut from that figure.
“We remain deeply concerned about growth,” Nomura analysts said this week. “We believe that the Omicron variant and zero COVID-19 strategy represent the main challenges to stable growth.”
Still, China’s communist leaders insisted on Thursday that the country would “unswervingly” stick to zero-Covid, with a meeting chaired by Xi declaring that “persistence is victory”.
To limit the mounting economic damage, Beijing offered words of respite to the tech sector from ongoing regulatory crackdowns and vowed to pump up the economy with an “all-out” infrastructure campaign.
But observers say the gatherings may be temporary as long as the state’s reflex remains to reduce the number of virus cases at all costs.
“(The measures are) all welcome… but how many more bridges and how many more sports stadiums are going to help us create an environment for predictable growth?” Joerg Wuttke, president of the European Chamber of Commerce, told reporters on Thursday.
While many cities have rebounded from short targeted shutdowns, other regions such as the agricultural base of Jilin province have been slow to recover from waves of restrictions.
“This (Jilin) precedent could mean a more lasting impact from Shanghai’s highly disruptive lockdown,” Gavekal Dragonomics’ Ernan Cui said in a report on Friday.
Devil in the detail
Analysts are awaiting delivery details behind Beijing policymakers’ sweeping pledges of support.
Chinese tech companies have been under the microscope of the state due to concerns over data misuse and monopoly.
But shares of big tech companies soared as the government called for “healthy development” in the sector and changed its language to complete its “rectification”.
It is unclear whether this marks the end of a series of punitive regulatory reviews.
Markets also cheered when the government announced support for real estate and an infrastructure push to support economic and social development.
But China “doesn’t have much room for new infrastructure construction, (or) local government borrowing,” said Dan Wang, chief economist at Hang Seng Bank China.
“In reality, there is not much room to grow.”
Although reminiscent of Beijing’s four trillion yuan ($600 billion at the current rate) stimulus package after the 2008 financial crisis – which included massive investments in infrastructure – Zhaopeng Xing of ANZ Research said ” we doubt that the authorities will maintain it at the cost of increased debts.”
China’s State Council also said it would give cash grants to unemployed migrant workers and called for more support for small businesses harassed by shutdowns and dwindling consumer demand.
But reinflating the economy is a big task made more complicated by each new level of virus control, experts say.
“These easing measures, even on a large scale, may not achieve the intended impact due to blockages and logistical disruptions,” Nomura added in its note.
A path of regular mass testing — which China appears to be heading — can also come with a hefty bill.
According to Nomura, it would cost between 0.9% and 2.3% of GDP for a regular testing mandate to extend to all of China.
With the economy faltering, an effective rebound could be given by lowering the interest rate, while authorities could also increase spending to spur the infrastructure push.
But the optimism is fading five months after a year already marked by the battle against the pandemic, with business activity collapsing and consumers fearful of what is to come.
“People had high hopes for this year,” Wang said.