Between growth and zero Covid Beijing is playing on the balance – economic policy

Promises of goodwill to the economy, but intransigence about zero Covid: To restore growth burdened by health care constraints, China is stepping up gestures to support activism without compromising an expensive antivirus strategy.

Under threat of slow growth, the Chinese government sent a reassuring signal in late April to powerful digital companies affected by the brutal seizure of the sector in late 2020. To support the economy, Beijing has also drawn the contours of big work, risking multiplying futile projects and increasing its debt.

But China’s zero-Covid policy of re-blocking and testing the population as soon as cases arise will continue despite high costs to the economy, President Xi Jinping insists. “Perseverance will bring victory against the virus,” a strong man from Beijing reassured on Thursday at a meeting with high-ranking Communist Party officials.

Mr. Xi had already made such remarks in early April, when Shanghai, which had just been closed, faced the worst outbreak of the virus in the country since the epidemic began in late 2019. Today, China’s economic capital remains cut off from the world. , which is very detrimental to the growth of the Asian giant. Already in March, the technological metropolis of Shenzhen (south) was briefly closed, and the northeast of the country, an industrial cradle and granary, was limited to almost two months.

Limited margin

These measures jeopardize Beijing’s 5.5% growth target in a politically sensitive year, when Xi Jinping will be reappointed to head the second world economy. Many economists doubt that the Asian giant will achieve its goal, which will be China’s weakest growth since 1990, except for 2020, the first year of the pandemic.

The current outbreak over the Omicron option and the zero Covid policy are the “main” barriers to action, Nomura analysts said this week. To ease the pressure on the economy, Beijing has offered the technology sector a break, freeing it from further constraints that hinder its development. Authorities have also announced many unmeasured investments in infrastructure. But Beijing “does not have much freedom,” said economist Dan Wang of Heng Seng Bank, a financial heavyweight in Hong Kong. China has significantly developed its infrastructure in recent decades, especially in the late 2000s, when it came to reviving an economy weakened by the global financial crisis. At the time, the country was investing 4,000 billion yuan (573 billion euros in current euros) in sometimes futile projects that inflated its debt. Analysts Zhaopeng Xing, an analyst at ANZ, suspect that the government should avoid something this time.

A vicious circle

Faced with declining growth, Beijing also intends to support SMEs and carmakers, which are the main sources of employment, through tax measures and tax cuts. The government is also considering providing assistance to unemployed migrant workers who are particularly vulnerable to economic dangers. But these measures may not have the desired effect due to restrictions that “significantly” harm the logistics and movement of the population and, ultimately, activity, warns Nomura.

In terms of health, although some cities tend to generalize free screening every 48 hours, Nomura said the move was a misconception. In order to detect positive cases as soon as possible in order to avoid harmful restrictions for the economy, this strategy has a “very high cost” that will not prevent the spread of the virus and, therefore, new restrictions, say bank economists. Moreover, the restrictions permanently disrupt economic dynamics, says analyst Hernan Tsui from Gavekal Dragonomics.

Under threat of slow growth, the Chinese government sent a reassuring signal in late April to powerful digital companies affected by the brutal seizure of the sector in late 2020. To support the economy, Beijing has also drawn the contours of big work, risking multiplying futile projects and increasing its debt. But China’s zero-Covid policy of re-blocking and testing the population as soon as cases arise will continue despite high costs to the economy, President Xi Jinping insists. “Perseverance will bring victory against the virus,” a strong man from Beijing reassured on Thursday at a meeting with high-ranking Communist Party officials. Xi had already made such remarks in early April, when Shanghai, which had just closed, faced the worst outbreak of the virus in the country since the epidemic began in late 2019. Today, China’s economic capital remains cut off from the world, which severely penalizes the growth of the Asian giant. Already in March, the technological metropolis of Shenzhen (south) was briefly closed, and the northeast of the country, an industrial cradle and granary, was limited to almost two months. These measures jeopardize Beijing’s 5.5% growth target in a politically sensitive year, when Xi Jinping will be reappointed to head the second world economy. Many economists doubt that the Asian giant will achieve its goal, which will be China’s weakest growth since 1990, except for 2020, the first year of the pandemic. The current outbreak over the Omicron option and the zero Covid policy are the “main” barriers to action, Nomura analysts said this week. To ease the pressure on the economy, Beijing has offered the technology sector a break, freeing it from further constraints that hinder its development. Authorities have also announced many unmeasured investments in infrastructure. But Beijing “does not have much freedom,” said economist Dan Wang of Heng Seng Bank, a financial heavyweight in Hong Kong. China has significantly developed its infrastructure in recent decades, especially in the late 2000s, when it came to reviving an economy weakened by the global financial crisis. At the time, the country was investing 4,000 billion yuan (573 billion euros in current euros) in sometimes futile projects that inflated its debt. Analysts Zhaopeng Xing from ANZ suspect that the authorities should avoid this time. Faced with declining growth, Beijing also intends to support SMEs and carmakers, their main sources of employment, through tax measures and tax cuts. The government is also considering providing assistance to unemployed migrant workers who are particularly vulnerable to economic dangers. But these measures may not have the desired effect due to restrictions that “significantly” harm the logistics and movement of the population and, ultimately, activity, warns Nomura. In terms of health, although some cities tend to generalize free screening every 48 hours, this event, according to Nomura, is a false good idea. In order to detect positive cases as soon as possible in order to avoid harmful restrictions for the economy, this strategy has a “very high cost” that will not prevent the spread of the virus and, therefore, new restrictions, say bank economists. Moreover, the restrictions permanently disrupt economic dynamics, says analyst Hernan Tsui from Gavekal Dragonomics.

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