When Chinese Premier Li Keqiang called for a “sense of urgency” about growing economic risks during a meeting with provincial officials earlier this week, it was his third such warning in days.
“We need to be highly vigilant for unexpected changes in the international and domestic situations, and downward economic pressure has further mounted,” China’s No 2 official told a symposium in Jiangxi province on Monday, according to a report in South China Morning Post, less than a week after drawing attention to the “complicated and evolving” global situation and COVID-19 outbreaks at home.
As China’s draconian “dynamic zero-COVID” pandemic restrictions and uncertainties including the war in Ukraine weigh on growth, Beijing appears increasingly concerned about the prospects for the world’s second-largest economy.
The uncertain outlook casts doubt on the ruling Chinese Communist Party’s ability to reach its target of 5.5 percent economic growth in 2022, even as state media insist the ambitious goal remains within reach, adding to mounting risks for the global economy that include war in Europe, soaring energy prices and upcoming interest rate increases in the United States.
And it raises questions about how far policymakers may go – regardless of adverse economic consequences – to meet Beijing’s lofty ambitions.
Shanghai’s ultra-strict lockdown is weighing on the economy and global supply chains [File: Aly Song/Reuters]
If COVID-19 cannot be quickly brought under control – which seems increasingly unlikely – then either Beijing’s zero-tolerance pandemic strategy or the growth target will have to go, said Carsten Holz, an expert on the Chinese economy and professor at the Hong Kong University of Science and Technology (HKUST).
“In the face of lockdowns, the old channel from state-directed credit to state-directed investment or production becomes inoperative,” Holz told Al Jazeera. “A relatively lockdown-free rural sector cannot save the real GDP growth rate: Agriculture’s share of GDP is only eight percent.
“Industry, the largest sector in GDP, cannot, either, as long as there are lockdowns, nor can the travel and hospitality industries,” Holz said.
Among China’s top 100 cities by GDP, all but 13 are under some level of pandemic restrictions, with the intensity of those controls on the rise, according to a recent analysis by global investment research firm Gavekal.
In March, China’s factories saw activity drop at the quickest pace in two years, while vehicle sales fell nearly 12 percent year on year.
‘Life above all’
Despite the mounting costs, Chinese President Xi Jinping, who is bidding to secure an unprecedented third term at the next party congress in October, has repeatedly ruled out any shift away from dynamic zero-COVID, insisting this week the country should “persist putting people above all, life above all.”
Facing deteriorating economic prospects, Beijing has flagged accelerating the rollout of pro-growth measures such as tax cuts and rebates and sales of special-purpose bonds (SPBs) to fund infrastructure projects.
On Monday, the China Securities Regulatory Commission announced that it would ask long-term investors and major shareholders to buy up shares to help stabilise the country’s sagging stock market, which in March saw foreign outflows of $11.2bn in bonds and $6.3bn in stocks.
Many analysts expect more sweeping measures, including interest rate cuts and looser lending rules, to follow in the near future.
“Up until now, Chinese leaders have been extremely cautious about stimulus, but if things continue the way they’re going, Beijing may have little choice but to return to the infrastructure stimulus playbook to goose growth,” Joe Mazur, a politics and finance analyst at Trivium China, told Al Jazeera.
Taylor Loeb, a finance and politics analyst also at Trivium China, said economic conditions have reached the point where “support policies are going to have to cast a wider net”.
“That means cuts to banks’ reserve requirement ratios (RRRs), a measure that gives the financial sector more agency in who they lend to,” Loeb told Al Jazeera.
“We’re also seeing a quickened rollout of the SPBs that typically fund local government infrastructure projects. SPB funds, like RRR cuts, run the risk of ending up in unproductive projects – as happened throughout the 2010s – but that may be a risk central policymakers have to take to juice the economy.”
Holz, the HKUST professor, suggested Beijing could possibly entertain drastic measures to reach its goal, such as doubling the salaries of state and Communist Party employees.
“It would create a budget deficit on the order of, roughly, 20 percent, but that would not become fully apparent until after the 20th National Congress of the Chinese Communist Party,” he said.
Chinese President Xi Jinping has ruled out moving away from a zero-tolerance approach to the coronavirus [File: Andy Wong/AP]
Even so, many economists are sceptical that anything in Beijing’s toolkit will be sufficient to avert a significant slowdown in growth.
On Friday, Morgan Stanley slashed its growth forecast for the Chinese economy this year to 4.6 percent, down from 5.1 percent.
“The policy stimulus will not be that effective as long as mobility is restricted on a broad scale,” Tommy Wu, lead economist at Oxford Economics in Hong Kong, told Al Jazeera.
“The government will have to reduce their emphasis on their growth target and be realistic about how the domestic headwinds and a challenging external environment will affect China’s economy through this year.”
If China’s opaque leadership can’t stomach adjusting its economic goals, particularly in a politically sensitive year, it could seek to change the narrative instead.
“Party Secretary Xi Jinping’s likeliest calculation will be that the easiest solution to the conundrum is to blame COVID-19 for not being able to reach the growth target, keep the death rate low with the help of extensive lockdowns, and secure his tenure as party secretary at the 20th party congress. The PRC’s real growth rate in 2022 could be anything, 0 percent or even negative,” Holz said.
“And should public discontent with lockdowns reach unprecedented dimensions, he could cite new scientific evidence and let the COVID wave roll as long as he can present himself as the rational, well-meaning leader that deserves another term as party secretary and president.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
