President Xi Jinping pledged to support the technology, infrastructure and employment sectors to revive the Chinese economybut analysts warn that growth will continue to slow until that Beijing abandon its rigid controls against Covid.
Two and a half years after the outbreak of the coronavirus in Wuhan, China is the last major economy still closed to the world, despite a relatively low death toll.
Lockdowns in dozens of cities have wreaked havoc on supply chains, driving small businesses out of business and locking consumers in their homes.
This puts 5.5% growth target in jeopardy established by Beijing.
“We remain very concerned about growth,” analysts at Nomura bank said this week. “The omicron variant and the zero covid strategy are the main obstacles to growth.”
However, Chinese communist leaders reiterated on Thursday that the country will “unswervingly” stick to the zero Covid strategy. “Perseverance will bring victory”Xi assured.
To ease pressure on the economy, Beijing offered the tech sector a break, sparing it further restrictions, and announced an infrastructure investment package.
But analysts say the improvements may be temporary as long as the government’s priority remains to curb the virus at all costs.
“(The measures are) very welcome…but how many more bridges and how many more stadiums are going to help us create an environment for predictable growth?” the president of the European Union Chamber of Commerce in China, Joerg Wuttke, told reporters on Thursday.
little room for maneuver
Analysts are waiting to learn the details of the promises of support announced by the government.
But Beijing “doesn’t have much room for manoeuvre,” estimates economist Dan Wang of Heng Seng Bank, a heavyweight in Hong Kong finance.
China has developed its infrastructure considerably in recent decades, especially in the late 2000s, when it had to revive an economy weakened by the global financial crisis.
The country invested 4 billion yuan (currently 573 billion euros) in sometimes useless projects that increased their debt.
This is something the government should avoid this time, says ANZ Bank analyst Zhaopeng Xing.
very high cost
Beijing has also said it will help SMEs and self-employed entrepreneurs, its main employers, with fiscal measures and tax cuts.
The government is also studying the possibility of supporting unemployed migrant workers, who are especially vulnerable.
But these measures may not have the desired effect due to lockdowns that “significantly” penalize logistics and population movements and activity, Nomura warns.
Also, widespread Covid testing, which in some cities takes place every 48 hours, is a false good idea, according to Nomura.
This strategy of detecting positive cases as soon as possible to avoid confinements has a “very high cost” and will not prevent the virus from continuing to circulate, say the bank’s economists.
“Especially since lockdowns break economic dynamics in a lasting way,” says Ernan Cui, an analyst at Gavekal Dragonomics.