China economy in freefall as policymakers 'fake' stability at crunch meeting


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The National People’s Congress — the annual meeting of China’s parliamentary body — kicked off on Saturday, March 5, in the Great Hall of the People in Tiananmen Square. Premier Li Keqiang delivered the 2022 work report, which unleashes fiscal spending and tax cuts to spur investment and consumption, aimed to ease an ongoing slowdown, stimulate growth and project confidence. 

All eyes are on the twice-a-decade meeting of the Communist Party, due this autumn, in which President Xi Jinping will almost certainly secure a precedent-breaking third term.

Above all else, policymakers are seeking to stabilise the economy, rather than make any great overhauls, to ensure nothing goes wrong ahead of this key moment.

Xu Hongcai, deputy director of the economic policy commission at the China Association of Policy Science, said: “Stability overrides everything before the 20th Party Congress.

“We need to create an environment for stable development.”

China’s economic recovery from the Covid slump was strong initially, but analysts now agree that all signs indicate a loss of momentum from the middle of 2021.

Debt problems in the property market, strict zero-Covid policy measures and wobbly consumer confidence have all taken their toll on the world’s second-largest economy.

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He said: “I anticipate delegates will be extra prudent this year and avoid airing alternate views on hot-topic issues such as the zero-Covid policy, common prosperity or China’s position on Ukraine.”

Opening the budget on Saturday, Premier Li announced a target for the country’s economy to expand “around 5.5 percent” this year, signalling the government’s emphasis on stabilizing growth.

He said: “In our work this year, we must make economic stability our top priority and pursue progress while ensuring stability.”

Mr Li acknowledged that the Chinese economy would face challenges this year, pointing to the sluggish recovery of consumption and investment, flagging growth in exports and a shortage of resources and raw materials.

Mr Li issued a government budget for this year that called for extra spending, plus the issuance of more bonds to pay for it, as analysts said the economy could only grow by further increasing borrowing and spending.

The central government, which has fairly little debt, will increase by 18 percent this year – by contrast, the increase last year was only 7.8 percent. 

The budget also includes heavy spending to help rural families and to build more rental housing, as well as further strong growth in military spending.

Meanwhile, the central bank has started cutting interest rates and pumping more cash into the economy, while local governments have sped up infrastructure spending in a bid to counter the slowdown.

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However, analysts believe any new property tax trials are expected to wait until the second half of 2022, when the housing market is expected to stabilise

In the meantime, regulators have marginally loosened property financing curbs to ward off debt defaults.

But with the looming decision on President Xi’s third term, analysts don’t expect much to grab headlines from the upcoming meeting.

Wang Jun, chief economist at Zhongyuan Bank, said: “When the economy faces relatively big pressures, it is not a good time for pushing forward drastic reform measures.”



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