The contradiction between the CCP’s “zeroing” policy and economic growth is growing
The New York Times reported on April 15 that the contradiction between the CCP’s extreme anti-epidemic measures and economic growth expectations has grown so wide that economists and even the Chinese premier have issued warnings.
Experts caution that the Chinese government’s 2022 economic growth target of 5.5 percent is now unrealistic, as much of daily economic life has ground to a halt. Chinese Premier Li Keqiang warned local officials on Monday to be aware of the rising economic cost of each round of the coronavirus outbreak, urging local authorities to balance containment with necessary economic growth incentives.
According to CCP state media, Li Keqiang said that “it is necessary to coordinate epidemic prevention and control and economic and social development.”
The British Broadcasting Corporation (BBC) reported on April 15 that Chinese Premier Li Keqiang warned at a recent symposium that “some unexpected factors exceeded expectations”, which made “economic operation face greater uncertainty and challenges”.
According to the BBC report, such an expression is quite unusual in the discourse system of the Chinese government.
Hundreds of thousands of people in China have been sent to centralized isolation facilities, and millions more have been quarantined at home. Economic activity and daily life in dozens of Chinese cities have been paused.
A survey by Nomura, a prominent Japanese investment bank, showed that as of Monday, 45 cities in China (covering a total of 373 million people) had implemented full or partial lockdowns, up from 23 cities (covering a total of 193 million people) a week earlier. A substantial increase. The population of these 45 cities accounts for more than a quarter of China’s total population, and their economic output accounts for about 40% of China’s GDP.
Economists cut China’s economic growth forecasts
The New York Times reported that the CCP’s “zeroing” measures are causing such a problem for the economy that economists have lowered their forecasts for China’s economic output this year. One economist even predicted that the Chinese economy would shrink in the coming months.
Morgan Stanley lowered its forecast for China’s economic growth rate in the first quarter of this year to zero, and the year-on-year growth rate from 4.5% to 3.9%, and believes that strict epidemic prevention measures will prevent the Chinese government from achieving 5.5% for the whole year this year. The economic growth rate for the whole year is expected to be only 5.1%.
In addition, Caixin Media’s survey of 14 institutions shows that economists’ forecasts for China’s gross domestic product (GDP) growth rate in the first quarter of 2022 averaged 4.5% year-on-year, up 0.5 percentage points from the fourth quarter of 2021. With a target of around 5.5% for the full year, the forecast range is 3.8% to 5.0%.
According to the research report of CICC, the domestic epidemic in China has rebounded significantly since March, and the number of affected provinces and the economic volume of related cities have both hit new highs since March 2020.
CICC believes that under the stricter epidemic prevention and control requirements in various places, the flow of people in the city and across regions has dropped significantly, and offline agglomeration and close-knit consumption will be greatly affected. The negative impact of 0.3 to 0.7 percentage points is expected to increase by about 5.0% year-on-year.
Xing Ziqiang, an economist at Morgan Stanley, said in the report, “The lockdown measures send a clear message that the CCP prioritizes containing the epidemic over the economy, and adjustments to the epidemic prevention strategy may be delayed.” He believes that “Infrastructure spending increases and real estate policy loosening can be expected, but the bigger question remains how to find a way out of the epidemic prevention strategy.”
Lu Ting, chief China economist at Nomura Securities, also said that the Chinese government has made the policy of zeroing out the CCP virus (new crown virus) epidemic as a priority.
Lu Ting said, “The problem is that after setting such policy goals, local governments will compete with each other.” For Lu Ting, the result of this competition is that local governments will increase the number of prevention and control measures to ensure that they do not. Take the risk of an uncontrollable outbreak. For example, officials have begun city-wide testing for the virus after Guangzhou, a city of 15 million, detected 20 locally transmitted cases last week.
Lu Ting pointed out that “if all local governments do this, the entire economy will be in trouble”, and the zero-clearing policy will be amplified by the entire system.
The Wall Street Journal, citing economists, reported that if the lockdown continues and expands, its economic impact could spread outward.
Dozens of Taiwan-listed electronics makers, including Pegatron, the second-largest assembler of Apple Inc’s iPhone, have suspended production in Shanghai and some surrounding Jiangsu to comply with local epidemic prevention regulations.
In Zhengzhou, the capital of central China’s Henan province, tens of thousands of workers and other workers at a large iPhone factory operated by Foxconn Technology Group were required Thursday to be tested for the coronavirus, according to a notice from Foxconn Technology Group.
The local government announced 7 new positive cases on Thursday (April 14), and if many positive cases are found later, Zhengzhou may shut down like Shanghai.
Foxconn said in a statement that Foxconn’s Zhengzhou plant is cooperating with the local government’s epidemic prevention efforts, and the plant is currently operating normally.
Affected by the CCP virus epidemic, China’s passenger car sales fell 10.5% year-on-year in March, China’s service sector activity experienced the fastest decline since the outbreak, and the consumer price index rose 1.5%, the fastest year-on-year increase in three months. .
Alicia Garcia Herrero, chief economist for the Asia-Pacific region at Natixis, wrote in an Asia Times column on Wednesday (April 13), “In short, if the lockdown continues,” the dynamic “Zero” policy could hurt China’s economy. “Aside from reduced demand for imports from China, a more immediate effect is inflation, given the world‘s reliance on Chinese production of intermediate goods.”
Expert: “Zero” is a pipe dream
At present, the closure and control of Shanghai is still the focus of the outside world, but there are still many cities in China that are subject to risk control.
In Shanxi, a major coal-producing province, the capital city of Taiyuan has been closed since Wednesday, according to state media. Health authorities in Taiyuan have reported about 90 new local cases of the coronavirus in recent days, including 37 on Wednesday (April 13).
China Daily, the official English-language newspaper of the Communist Party, said in a Weibo post on the social media platform Weibo that “the urban area can only be entered but not allowed”, along with a video taken by drones. In the film, the streets of this city of more than 5 million people are almost deserted.
Kunshan, a manufacturing hub about 48 kilometers west of Shanghai, suspended public transportation last week and ordered the closure of non-essential businesses. The local government said late on Tuesday that it had extended some of those restrictions for another week due to rising cases.
The city of Suzhou, where Kunshan is located, reported 375 new cases between March 10 and April 11, according to an official statement released on Tuesday (April 12). Nearly half of them were found in Kunshan.
The Suzhou municipal government said on Wednesday (April 13) that “the general public is requested to stop all non-essential movements and let the city slow down, calm down and stop.” A community of nearly 19,000 residents in the city of Suzhou has been placed under complete lockdown since Tuesday (April 12).
Residents in the southern city of Guangzhou said the city’s usually bustling streets had become unusually quiet, with local health officials imposing targeted lockdowns to stamp out smaller clusters of outbreaks that have emerged in recent days, the Wall Street Journal reported. The local government has ordered restaurants, gyms and movie theaters to be closed, and people leaving Guangzhou must have a negative test certificate for the new crown. Guangzhou reported 44 new local cases on Thursday.
A veteran Taiwanese leather goods seller who has lived in Guangzhou for decades said the measures the city is taking are the strictest epidemic prevention and control measures he has seen since the outbreak began.
The businessman said that about three months ago, everyone was still excited about the start of this year, and they all believed that the epidemic was finally over. Who would have thought that the situation would suddenly become so bad. He complained that disruption to logistics took a toll on his business.
In the neighboring city of Shenzhen, the city resumed its lockdown on an area on Thursday, according to a notice posted on the social media platform Weibo. Shenzhen imposed a round of total lockdowns in March, but it has been lifted.
In Changchun, the capital of northeastern China’s Jilin Province, a resident was detained on suspicion of inciting neighbors to knock on pots to protest the unstable food supply, according to local police. detention.
Public health experts reminded that given the limited accuracy of nucleic acid testing and the impossibility of completely closing regional borders, the extremely high transmissibility of the CCP virus variant Omicron variant makes it difficult to control it through blockades.
Leong Hoe Nam, an infectious disease expert at Singapore’s Mount Elizabeth Novena Hospital, said of the CCP’s anti-epidemic actions that although the CCP’s will to clear the virus is “very strong,” “I think it is necessary to eliminate the Microron is a pipe dream.”
The Central Bank of the Communist Party of China announced on Friday that it will reduce the deposit reserve ratio, and from April 25, the deposit reserve ratio of financial institutions will be lowered by 0.25 percentage points. City commercial banks that do not operate across provinces and rural commercial banks that have a deposit reserve ratio higher than 5% will drop an additional 0.25 percentage points. This week’s regular meeting of the CCP and the CCP’s central bank have successively mentioned that monetary policy tools such as RRR cuts should be used in a timely manner to support the economy.
In answering a reporter’s question, the Central Bank of the Communist Party of China stated that the RRR cut is to increase the long-term stable funding sources of financial institutions, guide banks to support industries and small and medium-sized enterprises seriously affected by the epidemic, and reduce the funding cost of financial institutions by about 6.5 billion yuan per year. This RRR cut has released a total of about 530 billion yuan of long-term funds.
According to a Bloomberg report, the central bank’s RRR cut as scheduled, underscoring the increasing pressure on the economy to stabilize growth amid the ongoing downturn in the real estate industry and the impact of the epidemic.
Zhou Hongli, senior economist at DBS Hong Kong, believes that the main reason for the CCP’s central bank’s RRR cuts is the epidemic. The recent closure of Shanghai has had a great negative impact on the overall economic recovery, because Shanghai accounts for a large proportion of both exports and consumption in the country.
Real estate market continues to cool as CCP boost fails
In response to the impact of the CCP virus epidemic, the CCP authorities have introduced a number of policies, and even the real estate market, which has been under “regulation” for four years, shows signs of loosening. Even so, analysts believe that the downward pressure on the economy will remain large without adjustment of the epidemic prevention strategy.
The Wall Street Journal reported on April 15 that, as an important tool to boost the economy during the downturn, China’s real estate market appears to have entered an endless cycle of alternating tightening and loosening. Banks in more than 100 cities have cut home mortgage rates, the central bank said on Thursday.
In 2021, the Chinese government moved to rectify real estate developers, and by this year, many cities have relaxed real estate policies, including lifting restrictions on home purchases, reducing down payment ratios and providing subsidies for home buyers.
To avoid a further decline in the property market and boost sentiment among home buyers, China’s Ministry of Finance said last month that it would not expand a property tax pilot this year.
However, the easing policies of the Chinese government have failed to reinvigorate the real estate market, and once the market cools, it will continue to slide downwards. The price of new commercial housing in China fell for the seventh consecutive month in March, official data from the Communist Party of China showed.
The 2022 Economic Blue Book issued by the Chinese Academy of Social Sciences, which has the official background of the Communist Party of China, stated, “The real estate market is likely to continue to be under pressure in 2022, and the growth of land sales revenue will face greater challenges accordingly, which will directly affect the disposable financial resources of local governments, and further It will have an impact on local debt risk.”
The property tax, which has been in the works for more than a decade, was once put on the agenda by the CCP authorities. It announced the expansion of the pilot program in October last year, but it was stopped just five months later. On March 16, the Ministry of Finance of the Communist Party of China issued a document stating that considering all aspects of the situation, the conditions for expanding the pilot cities of real estate tax reform will not be met within this year.
Many institutions believe that the 2022 real estate tax pilot may still be in the process of brewing a plan and will not be launched to reduce the downward pressure on the real estate industry.
In addition, long-standing pressure on the housing market is showing signs of easing. Since the beginning of this year, many places in China have intensively introduced real estate easing policies. According to statistics from the Centaline Real Estate Research Center, more than 70 cities have issued new policies to stabilize the property market in 2022. Hot cities such as Suzhou and Nanjing have also joined the ranks of policy loosening.
The New York Times reported that in the past few economic recessions, the CCP has released policies to boost the economy by stimulating the housing market. Ren Zhiqiang, a former real estate tycoon in China, has a popular metaphor. He said that real estate is like a “chamber pot”.