Between growth and zero Covid, Beijing strikes the balance – Economic policy

Promises of goodwill to the economy but intransigence on Covid zero: to relaunch growth weighed down by health restrictions, China multiplies gestures to support business without denying an expensive antivirus strategy.

Threatened by sluggish growth, the Chinese government sent a reassuring signal in late April to powerful digital companies, battered by the industry’s brutal takeover in late 2020. To bolster the economy, Beijing has also mapped out the contours of major works, with the risk of multiplying useless projects and increasing one’s debt.

But China’s zero Covid policy, which involves repeated blockades and population tests as soon as cases appear, will continue despite the high costs for the economy, insists President Xi Jinping. “Perseverance will lead to victory” against the virus, assured the strongman of Beijing on Thursday, in a meeting with senior officials of the Communist Party.

Mr. Xi had already made such remarks in early April, when newly confined Shanghai faced the country’s worst viral outbreak since the outbreak began in late 2019. China’s economic capital remains cut off from the world today. , which heavily penalizes the growth of the Asian giant. As early as March, the technological metropolis of Shenzhen (south) was briefly put under glass, while the north-east of the country, industrial cradle and granary, was confined for almost two months.

Limited margin

These measures jeopardize the growth target of 5.5% set by Beijing, in a politically delicate year that should see Xi Jinping reconfirm himself at the helm of the second world economy. Many economists doubt that the Asian giant will achieve its target, which would mark the weakest growth in China since 1990 apart from 2020, the initial year of the pandemic.

The current outbreak due to the Omicron variant and the zero Covid policy are the “main” obstacles to business, Nomura bank analysts noted this week. To ease the pressure on the economy, Beijing has offered a respite to the tech sector, sparing it further restrictions that are hindering its development. The power also announced a multitude of unquantified investments in infrastructure. But Beijing “doesn’t have much room for maneuver,” said economist Dan Wang of Heng Seng Bank, a financial heavyweight in Hong Kong. China has significantly developed its infrastructure in recent decades, particularly in the late 2000s, when it came to reviving an economy weakened by the global financial crisis. The country had then invested without counting 4,000 billion yuan (573 billion current euros) in projects that were sometimes useless and inflated its debt. Something the power should avoid this time, analyst Zhaopeng Xing of the ANZ bank suspects.

vicious circle

Faced with declining growth, Beijing also intends to support SMEs and self-employed people, its main sources of employment, with fiscal measures and tax cuts. The government is also evaluating aid for unemployed migrant workers, who are particularly vulnerable to economic risks. But these measures may not have the desired effect, due to confinements that “considerably” penalize logistics and population movements and, ultimately, activity, warns Nomura.

On the health front, while some cities tend to generalize free screening every 48 hours, this measure turns out to be a false good idea, according to Nomura. It consists in detecting positive cases as soon as possible to avoid confinements harmful to the economy, this strategy has a “very high cost” that will not prevent the circulation of the virus and therefore new restrictions, argue the bank’s economists. Especially since the confinements definitively break the economic dynamics, underlines the analyst Ernan Cui, of the Gavekal Dragonomics studio.

Threatened by sluggish growth, the Chinese government sent a reassuring signal in late April to powerful digital companies, battered by the industry’s brutal takeover in late 2020. To bolster the economy, Beijing has also mapped out the contours of major works, with the risk of multiplying useless projects and increasing one’s debt. But China’s zero Covid policy, which involves repeated blockades and population tests as soon as cases appear, will continue despite the high costs for the economy, insists President Xi Jinping. “Perseverance will lead to victory” against the virus, assured the strongman of Beijing on Thursday, in a meeting with senior officials of the Communist Party. Xi had already made such remarks in early April, when newly confined Shanghai faced the country’s worst viral outbreak since the outbreak began in late 2019. China’s economic capital remains cut off from the world today. heavily penalizes the growth of the Asian giant. As early as March, the technological metropolis of Shenzhen (south) was briefly put under glass, while the north-east of the country, industrial cradle and granary, was confined for almost two months. These measures jeopardize the growth target of 5.5% set by Beijing, in a politically delicate year that should see Xi Jinping reconfirm himself at the helm of the second world economy. Many economists doubt that the Asian giant will achieve its target, which would mark the weakest growth in China since 1990 apart from 2020, the initial year of the pandemic. The current outbreak due to the Omicron variant and the zero Covid policy are the “main” obstacles to business, Nomura bank analysts noted this week. To ease the pressure on the economy, Beijing has offered a respite to the tech sector, sparing it further restrictions that are hindering its development. The power also announced a multitude of unquantified investments in infrastructure. But Beijing “doesn’t have much room for maneuver,” said economist Dan Wang of Heng Seng Bank, a financial heavyweight in Hong Kong. China has significantly developed its infrastructure in recent decades, particularly in the late 2000s, when it came to reviving an economy weakened by the global financial crisis. The country had then invested without counting 4,000 billion yuan (573 billion current euros) in projects that were sometimes useless and inflated its debt. Something that this time should be avoided by the power, suspects analyst Zhaopeng Xing, of the ANZ bank. Faced with the decline in its growth, Beijing also intends to support SMEs and self-entrepreneurs, its main sources of employment, with fiscal measures and tax cuts. The government is also evaluating aid for unemployed migrant workers, who are particularly vulnerable to economic risks. But these measures may not have the desired effect, due to confinements that “considerably” penalize the logistics and movement of the population and ultimately the activity, warns Nomura On the health front, while some cities tend to generalize free screening every 48 hours, this measure turns out to be a false good idea, according to Nomura. It consists in detecting positive cases as soon as possible to avoid confinements harmful to the economy, this strategy has a “very high cost” that will not prevent the circulation of the virus and therefore new restrictions, argue the bank’s economists. Especially since the confinements definitively break the economic dynamics, underlines the analyst Ernan Cui, of the Gavekal Dragonomics studio.

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