China signals no big stimulus ahead, as Covid checks remain

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

Aly Song | Reuters

BEIJING — China’s top leaders signaled on Thursday that no major revival of economic growth was on the way and downplayed the need to meet the target of “about 5.5%” of GDP.

In the second half of the year, the authorities announced that they would stabilize employment and prices, according to a reading status media of the leaders meeting on Thursday. Chinese President Xi Jinping led the economic meeting, held regularly with Chinese leaders, known as the Politburo.

This high-level mention of price stabilization indicates that there are likely to be no further expansionary policies, Wang Jun, director of the China Chief Economist Forum, said in a phone interview. He noted high inflation overseas and expects China to face greater inflationary pressure in the coming months.

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

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

China’s gross domestic product rose just 2.5% in the first half from a year ago, after the economy collapsed in the second quarter. The country’s worst Covid-19 outbreak since 2020 brought metropolitan Shanghai to a standstill in April and May, while related restrictions in other parts of China hit business activity.

Stick to Zero-Covid

“Regarding the relarelationship between the fight against the pandemic and the development of the economy and society [we must] …take a long-term view, especially from a political perspective, calculate the political cost,” the state media readout of the Politburo meeting said in Chinese, according to a CNBC translation.

The reading highlighted how local governments should take a more localized approach, especially when it comes to economic policy and addressing real estate issues.

“Provinces with the conditions to achieve the economic goals should strive to do so,” the report said.

Shanghai’s GDP contracted 5.7% in the first half from a year ago, while that of the city of Beijing rose just 0.7%, according to data accessed via Wind. Information. Shanxi, Jiangxi and Fujian provinces were among the fastest growing, growing at least 4.6% in the first six months of 2022.

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

He estimated that the annual urban unemployment rate of 5.5% can still be achieved if the economy rebounds by around 5% or more in the second half of the year.

Real estate: a local affair

On real estate, China’s leaders stuck to their mantra that “houses are for living in, not speculating on,” while saying local governments are responsible for delivering completed homes.

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

The minutes of the meeting also noted that the policy for resolving property issues should not be the same in all cities, said Qin Gang, executive director of China’s property research institute ICR.

Instead, he said the reading encouraged local governments to take a localized approach to supporting first-time home or upgraded property purchases.

Technological repression

On the Internet, the technological repression that hits the companies of Ali Baba at Have I gotChinese authorities reported again they were coming to a turning point.

The minutes of the Politburo meeting called for the continued “healthy” development of the “platform economy” and the “completion” of business adjustments. The leaders also said lists of authorized “green” investment zones should be published.

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

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