The Chinese authorities are doing everything in their power to avoid doing what they must do as the tanks of the economy. The PBOC:
Covid Related Policies
- A promise to use monetary policy tools to provide sufficient liquidity, guide banks to expand lending extension and transfer profits to the real economy appropriately
- A commitment to expand the lending quota for small businesses and agricultural businesses, and guide banks to increase support for industries suffering a temporary business hit, including catering, hospitality, retail retail and tourism
- The central bank will reward banks with funds equivalent to 1% of their newly increased loans for small and micro businesses until mid-2023, and renew an existing loan quota of 400 billion yuan ($62.8 billion). dollars) for inclusive finance
- Banks should defer mortgage payments or extend mortgages for people in Covid-related quarantine, as well as those who have temporarily lost income due to the pandemic; banks should also provide more business loans to workers with “flexible employment”, such as taxi drivers, online store owners and truck drivers
- A promise to increase credit support for spring planting, as well as grain storage and processing and production of major crops, such as soybeans
- The central bank will use its on-lending program to support safe coal generation and respond to demand from power generation companies to purchase and store coal, to ensure stable energy supply
- It will support banks’ ability to provide loans to logistics companies and truck drivers, and allow them to provide emergency loans to support airlines and airports.
- Through the loan program, the central bank will guide banks to support business research and development
- Political banks should step up their financial support for large investment projects, and all banks should proactively seek out projects, including those focused on “new infrastructure,” such as data centers. Banks should also buy government bonds to support infrastructure investments at the beginning of the period and meet the reasonable needs of local government financing vehicles.
- The central bank will encourage banks to establish long-term partnerships with private companies and increase their share of new loans to companies
- Cities should establish differentiated mortgage policies and set appropriate down payment and mortgage rate requirements; banks, meanwhile, should increase their support for quality real estate projects and lend more to construction companies
- Fintech companies expected to cut fees and interest rates
- The central bank will increase financial support to sectors such as elderly care and tourism, as well as green energy and rural sectors
- Central bank to test more convenient yuan regulations in trade, investment
- It will be easier for companies to borrow abroad
- It will encourage companies to use more yuan to settle cross-border trade and improve foreign exchange derivatives so that companies can better prevent risks.
- It will further digitize cross-border banking settlement and payment services
- It will strengthen insurance support for small exporters and importers
- It will improve procedures and standards to facilitate foreign investors’ investment in China’s securities markets.
- The central bank will strengthen the leadership role of the Communist Party in implementing the policy
- Banks should make autonomous decisions and assume their own risks; the central bank will also guide banks and companies to prevent moral hazard and strengthen compliance
- Central bank to speed up bond issuance for pandemic-affected companies by simplifying procedures and reasonably relaxing information disclosure requirements
- It will ensure the supply of cash, as well as the operation of a digital payment system; banks can approve loans remotely via videoconference; the central bank will also ensure that tax refunds are paid to companies.
None of this matters enough while OMICRON travels to other cities. Societe Generale:
Unsurprisingly, China’s first-quarter GDP growth and March activity data surprised on the upside. The data report may or may not capture the true degree of loss in growth momentum through the end of March. But, like the National Bureau of Statistics, we are revising our forecast for annual GDP growth upwards from 4.3% to 5% for 2022.
In reality, the economy is in trouble. And nothing in today’s data stands in the way of further policy easing. But the problem, as we have repeatedly pointed out, is the lockdowns – still in place and still spreading. We expect the implementation of the zero-tolerance policy to be adjusted in the coming weeks to allow Shanghai’s industrial sector to resume production, to save Chinese high-end manufacturing supply chains. permanent scars. But the demand engine may have to keep running for some time thanks to infrastructure investment and (weak) export momentum.
The analyst community is now united in skepticism over China’s numbers. GDP is easy to care for. Simply hold down the deflator and so!
The second problem remains the property which is still annoyed by the policy of the three red lines plus the fallout:
Unless or until the “three red lines” are removed, counterparty risk kills all stimulus efforts.
Even the frontloading of infrastructure spending has now stalled:
In short, the Chinese hard landing has no end in sight. TS Lombard:
There’s no sign yet that Xi won’t be anointed, but the fallout from his zero-tolerance policy and embrace of Putin could turn him into a lame leader in his third term. At a minimum, Xi’s grandiose plans to promote his “common prosperity” mantra by strengthening the Communist Party’s power and aligning the private sector with the party’s political and social goals via a new development model that prioritises the Social equity and national security will only be possible if the current slowdown in growth is reversed. Meanwhile, having seen how the West has successfully deployed a complete siege of Russia’s economy through sanctions, XI will redouble efforts to bolster China’s technological self-sufficiency and minimize the country’s vulnerability to penalties. It won’t be an easy task, especially if Xi continues to embrace Putin.
Ultimately, China is entering a new phase of much slower economic growth, which reflects ideological arrogance, personal self-promotion, bad economic policies and bad luck. Barring bad luck, the common thread running through this litany of misadventures is the failure of the country’s Communist Party leadership due in large part to weaknesses in the governance system with its lack of checks and balances and ideological rigidities. Although the regime’s zero-tolerance policies worked quite well at the start of the pandemic, leaders did not change their strategy once the Omicron variant became dominant. Valuable time was wasted by not vaccinating the elderly population and promoting boosters more widely. is now stuck with a failing strategy that is compounding economic losses and has no clear idea how to get out of the zero tolerance strategy, not least because natural immunities have failed to develop as a result of the removal of infections via blockages. A quick resolution to the country’s Covid dilemma is not in sight.
Regarding the war in Ukraine, senior leaders chose to support Putin’s invasion, despite his violation of Ukraine’s sovereignty and China’s longstanding position on supporting sovereignty. Moreover, Beijing’s leadership viewed support for Russia as an anti-American statement. Once the Russian invasion stalled, the leadership’s reluctance to break out of the fence fueled a significant reassessment by Western powers of their economic relationship with Beijing – a development that the leadership was totally unprepared to deal with. The EU’s tougher stance towards China on technology and trade issues, which more closely resembles that of the US, is a game-changer as it elevates security concerns across a wide range of Chinese export industries with likely disruptive effects. These potential effects will occur over a longer time horizon than those of Covid, but the outcome could be far-reaching. Additional thoughts on what Grace Fan calls the Tech Shocks coming to Cold War 2.0.
While China’s economic growth has demonstrated its ability to rebound in the past, this time around will likely be different. On the one hand, the lockdowns have severely affected consumer sentiment. There is little chance of a resumption of the pace of growth without a rebound in retail spending, which seems unlikely. Furthermore, there are few signs that the lingering crisis in the real estate sector is being resolved. The government sealed off the area to prevent a slump, but the surplus of unsold properties went unaddressed as local governments stepped in to prevent prices from falling on the scale that would be needed to clean up the market. Without a resurgence in end-consumer demand, the provision of cheap financing will not help. For these reasons, real estate will remain a drag on growth for years to come.
The dream is over.
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