The focus is now on whether government stimulus will be enough to avert the damage from the latest lockdowns, some of which are expected to continue into next year, as Xi Jinping redoubles efforts to reach zero cases despite warnings from the World Health Organization (WHO) that the policy is not sustainable.
China’s huge property market is the latest cause for concern after data released on Friday showed a slump in new lending in April to its lowest level in four years.
The People’s Bank of China (PBoC) on Sunday evening (AEST) announced a cut to 4.4% from 4.6% in the minimum mortgage rate for first-time home buyers. Analysts said the unexpected move would open the door to broader rate cuts, although the PBoC did not follow through with a cut in rates on the medium-term lending facility on Monday as some had expected.
For the first time in decades, economists are questioning whether the Chinese government can meet its annual growth forecast, with some warning that the economy will never regain its pre-pandemic strength. In the long term, this could undermine demand for key Australian exports such as iron ore.
“We are pessimistic about China’s medium-term outlook. The authorities are expected to cancel their support measures next year. This coincides with an uncertain global outlook with US growth likely to decline,” said ANZ Chief Economist for Greater China Raymond Yeung.
The ANZ on Monday cut its GDP forecast for China in 2023 to 4.2% from 5.1% on fears that the government will activate the stimulus before withdrawing it after Mr. Xi is reinstated as president for a third term, as expected later this year.
It was then expected that the government would once again focus on deleveraging along with the brilliance of China’s manufacturing sector.
“Although China will retain its competitive edge with its production quality and large consumer market, many multinational companies are likely to reassess the level of operational risk in China. Access to foreign technology and business know-how will become increasingly difficult,” Yeung said.
ANZ maintained its 2022 GDP forecast at 5%. The Chinese government’s target is 5.5%.
A declining real estate sector is another challenge for Xi as China’s economy struggles to recoup the damage from global supply chain disruptions and COVID-19 lockdowns across the country. Data released on Monday showed the volume of new home sales fell 39% in April, while sales in value fell 46.6%.
The latest economic data adds to growing pressure on the Chinese government to launch new stimulus measures to stabilize the economy. While Mr. Xi signaled a boom in infrastructure spending, lockdowns and travel restrictions have delayed construction and other activities.
“The large-scale hit to growth will require stronger policy impetus on all fronts – fiscal, monetary, real estate and regulatory – to help stabilize growth in the months ahead as Omicron’s situation is better under control.” said Jing Liu, HSBC’s chief economist for Greater China. mentioned.
“Fiscal support will come through tax cuts and stronger pressure for infrastructure investment through continued local government bond special issuance. will go through a combination of policy tools, including liquidity injections and targeted credit support, for example through lending quotas.
Also in April, investment in fixed assets held up better, rising 6.8% in the first four months of the year.
The main cause of weak economic activity was due to a series of shutdowns across the country, with Shanghai being the hardest hit.
Shanghai Deputy Mayor Zong Ming on Monday gave one of the clearest indications yet of plans to return to normalcy in the city of 25 million. He said a gradual reopening would take place from May 21 and daily life would “normalize” by the end of June unless there was a further upsurge in infections.
However, economists fear that even if Shanghai’s lockdown ends, the risk of further restrictions on cities and manufacturing hubs across the country remains high given the difficulty of containing the omicron variant. Neighboring Taiwan has all but abandoned its zero COVID-19 strategy after cases spiked there.
“While the worst is hopefully behind us, we believe the Chinese economy will remain relatively weak over the coming quarters as production struggles to return to its pre-pandemic trend,” said Julian Evans. -Pritchard, senior economist at Capital Economics.
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