China pledges to support struggling economy, analysts doubt impact | coronavirus pandemic
China has promised tax cuts and infrastructure spending to support economic growth, as economists have cast doubt on a strong rebound for the world’s second-largest economy as long as lockdowns persist.
Beijing will increase annual tax cuts from more than 140 billion yuan ($21 billion) to 2.640 billion yuan, offer tax cuts to more economic sectors and postpone social security payments worth of 320 billion yuan until the end of the year, announced the state agency Xinhua. The news agency quoted the State Council, China’s cabinet, on Monday.
Other measures include 150 billion yuan ($22.5 billion) in emergency loans for the struggling aviation sector, issuing 300 billion yuan ($45 billion) in bonds for finance the construction of railways and investments 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 entities,” the firm said, according to Xinhua.
China’s leaders have pledged to bolster their support for the flagging economy, even as they double down on their ultra-strict ‘dynamic zero COVID’ policy that has confined millions to their homes, closed factories and upended chains supply.
Carsten Holz, an expert on the Chinese economy at the Hong Kong University of Science and Technology, expressed doubts that the measures would revive the economy as the lengthy shutdowns continue.
“Tax cuts, refunds and deferred social security payments will have no effect on the economy unless the extra funds in the hands of the public can be spent – impossible in times of foreclosure – and the public is willing to spend the funds – less likely at times of uncertainty,” Holz told Al Jazeera.
“I am simply not optimistic about economic growth in the PRC for this year – and even for the future, due to long-term systemic characteristics and traditional economic development trajectories,” Holz added, referring to the official name of China, 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 going forward.
“That’s at least 3.76% of gross domestic product in 2022,” Pang told Al Jazeera. “Whether that’s enough depends on the flexibility of future lockdowns.”
China’s retail sales and industrial production in April fell to their lowest levels since the early days of the pandemic, as draconian pandemic-related restrictions brought major cities including Shanghai and Beijing to a standstill.
Beijing has set itself an ambitious target of around 5.5% growth in 2022, which many economists say is unrealistic given the growing number of lockdowns and the lack of a timetable for moving beyond draconian controls for good.
In addition to the fiscal measures, China has also implemented a looser monetary policy, last week cutting the benchmark mortgage rate by 0.15 percentage points more than expected.
Gary Ng, senior economist at Natixis in Hong Kong, said China’s fiscal stimulus could be less effective this time around than during the early days of the pandemic.
“In a way, China’s success in 2020 depends not only on supportive fiscal stimulus, but also on looser mobility restriction after the early virus containment. However, the world has changed and the virus has evolved into more transmissible variants,” Ng told Al Jazeera.
“So if the zero-COVID strategy is to endure, businesses and households will still find it difficult to invest and consume despite more substantial assistance from the Chinese government. Fiscal policies may not be as effective as before if the Intermittent closures prevent normal economic activities.”