China promises support for ailing economy, analysts doubt impact | Coronavirus pandemic
China promises support for ailing economy, analysts doubt impact |  Coronavirus pandemic

China promises support for ailing economy, analysts doubt impact | Coronavirus pandemic

China has promised tax cuts and infrastructure spending to support economic growth, as economists cast doubt on a strong recovery for the world’s second-largest economy as long as the downturn continues.

Beijing will increase annual tax cuts by more than 140 billion yuan ($ 21 billion) to 2.64 trillion yuan, offer tax rebates to more economic sectors and defer social security payments worth 320 billion yuan until the end of the year, the state-run Xinhua News Agency quoted The State Council, China’s Cabinet, to say Monday.

Other initiatives include 150 billion yuan ($ 22.5 billion) in emergency loans to the struggling aviation sector, the issuance of 300 billion yuan ($ 45 billion) in bonds to finance rail construction and investment in new projects in the fields of energy, transport and water conservation. .

“At present, the downward pressure on the economy continues to increase and it is very difficult for many market units,” the cabinet said, according to Xinhua.

China’s leaders have promised to increase support for the declining economy, even though they are doubling down on an ultra-strict “dynamic zero COVID” policy that has confined millions to their homes, closed factories and threw supply chains into disarray.

Carsten Holz, an expert in Chinese economics at Hong Kong University of Science and Technology, expressed doubts that the measures would boost the economy as long as shutdowns continue.

“Tax breaks, rebates and deferred social security payments will have no effect on the economy unless the extra funds in the hands of the public can be used – not possible in lockdown – and the public is willing to use the funds – less likely in times of uncertainty,” he said. Wood for Al Jazeera.

“I’m just not optimistic about economic growth in China for this year – and even for the future, due to long-term, systemic features and traditional economic development trajectories,” Holz added, referring to China’s official name, the People’s Republic of China.

Iris Pang, chief economist for Greater China at ING, said the stimulus “is not small”, but its impact will depend on the severity of restrictions in the future.

“That’s at least 3.76 percent of gross domestic product by 2022,” Pang told Al Jazeera. “Whether this is enough depends on how flexible upcoming lockdowns will be.”

China has set an ambitious target of around 5.5 percent growth for 2022 [File: Thomas White/Reuters]

China’s retail and industrial production fell in April to their lowest levels since the early days of the pandemic, when draconian pandemic restrictions brought major cities, including Shanghai and Beijing, to a standstill.

Beijing has set an ambitious target of around 5.5 percent growth by 2022, which many economists believe is unrealistic given the growing number of shutdowns and the lack of a timetable to get past draconian controls forever.

In addition to fiscal policy measures, China has also adopted a looser monetary policy, as last week it lowered the reference rate for mortgages by more than the expected 0.15 percentage points.

Gary Ng, a senior economist at Natixis in Hong Kong, said China’s fiscal stimulus may be less effective this time than in the early days of the pandemic.

“In a way, China’s success story back in 2020 depends not only on the supportive fiscal stimulus, but also on the looser mobility constraint after the early containment of the virus. But the world has changed and the virus has evolved into more transferable variants,” Ng said. to Al Jazeera.

“So if the zero-COVID strategy is to remain, businesses and households will still find it difficult to invest and consume despite the more extensive help from the Chinese government. Fiscal policies may not be as effective as before if closures and closures prevent normal economic activities. “

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