China pledges more economic support as lockdowns stymie growth

Top decision-making body pledges package of measures to help industries and small firms affected by the pandemic.

China will ramp up support for the economy as COVID-19 outbreaks and the Ukraine war threaten growth, the ruling Communist Party’s top decision-making body said on Friday.

China will roll out a package of measures to help industries and small firms affected by the pandemic, state media said, citing a meeting of the Politburo chaired by President Xi Jinping, as the country’s strict lockdowns weigh on consumption and disrupt production.

“The COVID-19 and Ukraine crisis have led to increased risks and challenges. The complexity, severity and uncertainty of China’s economic development environment have increased,” the Politburo was quoted as saying.

“Stabilising growth, employment and prices are facing new challenges. It is very important to do a good job in economic work and effectively protect and improve people’s livelihood.”

Carlos Casanova, senior economist for Asia at UBP in Hong Kong, said the Chinese government was starting to become concerned about the effect of severe lockdowns on the economy.

“We expect that the economy will contract in the months March-April before stabilising in June,” Casanova told Al Jazeera.

“Moreover, it may take time before these measures translate into a pick-up in real activity as increasingly more people are entering quarantine and infrastructure investments only boost growth with a lag. We can’t exclude the possibility of moderate derating in the short term, particularly on the back of earnings revisions, which don’t yet factor in the impact that these lockdowns will have on consumption. However, it is possible that we will see a more sustainable rally in the second half of the year, provided the authorities deliver on the rhetoric.”

China’s benchmark index jumped more than 2 percent following the Politburo meeting on Friday, with the tech-focused STAR50 Index surging more than 4 percent. Shares of Hong Kong-listed tech firms also rose, with the Hang Seng Tech Index up more than 7 percent.

Market turmoil

Financial markets have been battered in recent weeks amid growing fears that China’s strict lockdowns may inflict severe damage on the economy and derail the global recovery just as the rest of the world is rebounding from the pandemic.

Despite the mounting social and economic costs of Beijing’s controversial “dynamic zero-COVID” policy, the Politburo said authorities would continue to aim to eliminate outbreaks while minimising the economic fallout.

China will strive to keep economic growth within a reasonable range and achieve social and economic targets for 2022, the Politburo said.

“We should accelerate the implementation of policies, implement tax rebates, tax and fee cuts and other policies, and make good use of all kinds of monetary policy tools,” the Politburo said, adding it will back the sustainable development of the property market and ensure stable operations of capital markets.

Beijing has set a target of about 5.5 percent growth for this year, a goal many economic analysts believe it is unlikely to achieve.

Last week, the International Monetary Fund cut its 2022 economic growth forecast for China to 4.4 percent, down from 4.8 percent in January.

Major financial institutions including UBS, the Bank of America, Barclays, and Standard Charted have also downgraded their outlooks in recent weeks.