Li Keqiang emphasizes “maintaining the smoothness of the industrial chain” to foreign investment, but does not mention the “zero-clearing” policy – BBC News 中文

In addition, Reuters, “Wall Street Journal” and other international media mentioned that on the above occasions, Chinese officials did not mention the “zero” policy that has the greatest impact on China’s economy, and believed that this reflected that Li Keqiang and Xi Jinping were maintaining growth or “clearing” There are differences on zero.

China’s economy suffered a huge blow in the first half of this year, and Shanghai, China’s most important economic center, was under lockdown for most of the second quarter.

The lockdown caused the manufacturing and service sectors to plunge sharply in March and April, with the deepest drop in April, when total retail sales of consumer goods fell 11.1% year-on-year.

Li Keqiang also acknowledged the current difficulties at the World Economic Forum. He said that in the second quarter of this year, due to the impact of unexpected factors such as a new round of epidemics, the downward pressure on the economy has suddenly increased, and major indicators have fallen deeply in April.

Although China maintained positive growth in the second quarter, it was only 0.4%, which was lower than market expectations, and also contributed to the economic growth of 2.5% in the first half of the year. This means that in order to reach the full-year growth target of 5.5%, the economy needs to grow by more than 8% in the second half of the year.

For China, whose economic growth has entered the “5 era”, the pressure to maintain growth is very great. And economists are generally not optimistic. For example, in the past 20 years, China’s economy has encountered difficulties, and the real estate industry has been stimulated to become a “panacea”, which has been tried and tested. This year, the old trick was repeated, but it didn’t work.

In contrast, foreign trade is very bright. Xu Tianchen, an economic analyst at the Economist Intelligence Unit (EIU), noted that the contribution of the trade balance (exports minus imports) to China’s economy in the first half of the year was the highest since 2016.

Li Keqiang and Liu He also emphasized the importance of maintaining the stability and smoothness of the industrial chain on the above-mentioned occasions, and the relative depreciation of the RMB under the Fed’s interest rate hike is more favorable for stimulating the growth of foreign trade.

Li Keqiang repeatedly mentioned that in stimulating the economy, we should not engage in “flooding”. He further explained that macroeconomic policies are both precise and powerful, and reasonable and appropriate, and will not introduce super-large-scale stimulus measures, excessive currency issuance, or advance the future in order to achieve excessive growth goals. .

He also said that since 2020, the policies we have implemented in response to major shocks such as the new crown epidemic have been reasonable in scale, without “flooding” and created conditions for preventing inflation.

This speech can’t help but remind people of the United States, where inflation remains high. After the outbreak of the epidemic, the Federal Reserve “fired all the bullets in one go” and prescribed “zero interest rate + quantitative easing”. The last time the dose was this high was after the 2008 financial crisis, so it is also called “crisis mode”. In the year since, governments around the world have followed in the footsteps of the United States with various stimulus packages totaling more than $10 trillion.

A large amount of money flows into the market, which is bound to increase prices. Nobel laureate Friedman once asserted, “Inflation is a monetary phenomenon anytime, anywhere.” This sentence is widely quoted to reveal the nature of inflation.

At present, in response to the highest inflation rate in 40 years, the United States has to choose to raise interest rates. The economy faces the risk of “stagflation”, that is, stagnant inflation. Generally, economic stagnation, high inflation, and high unemployment appear at the same time. When an economy falls into stagflation, production declines, leading to rising unemployment and even a wave of bankruptcies.

In addition, China also has lessons learned. After the financial crisis in 2008, China announced a “proactive fiscal policy and moderately loose monetary policy”, revealing an economic stimulus plan worth 4 trillion yuan, which boosted the sluggish global economy at the time.

This is what Li Keqiang called “a flood of water”. At that time, following the continuous interest rate cuts, a lot of money was injected into the economy, and the infrastructure frenzy became the main force behind the economy. Beginning at the end of 2008, the National Development and Reform Commission suddenly relaxed the approval conditions, and intensively approved the subway plans of 28 cities, with an investment of more than 1 trillion yuan. In fact, 45% of the “four trillion” was invested in roads, railways, airports and urban and rural power grids.

But soon, it was seen as a “drinking poison to quench thirst” plan, driving up debt risks and blowing up a real estate bubble. Wu Jinglian, a researcher at the Development Research Center of the State Council of China, called it “a way to quench thirst by drinking poison” because instead of lowering leverage, it further leveraged it, and once there is trouble, “partial capital chain breaks are transmitted to other parts of the financial market, triggering systemic crisis”.

Therefore, China had to bear the pain caused by “cutting production capacity, destocking, and deleveraging” for many years.

Neither Li Keqiang nor Liu He mentioned the “dynamic clearing” policy, which aroused concern because it is difficult to effectively stimulate the economy if the strict epidemic prevention policy is not relaxed. Some netizens on Chinese social media described it as “searching for all kinds of prescriptions, but the hand on the neck has not been released.”

In fact, Li Keqiang also mentioned epidemic control in the video conference of the World Economic Forum:

For example, “Efficiently coordinate epidemic prevention and control and economic and social development, mobilize the enthusiasm of all parties, insist that development is the basis and key to solving all problems in China, and promote economic operations to return to the normal track as soon as possible.”

For another example, “on the premise of ensuring epidemic prevention and safety, more precise and scientific prevention and control will be achieved, and prevention and control policies such as visas and testing will be continuously optimized. “

Obviously, both of his statements tend to better take into account economic recovery, rather than blindly stressing control of the epidemic.

However, China’s concern is still the mortality rate. The number of ICU beds in China is much lower than that of European and American countries, and the distribution of medical resources between urban and rural areas is extremely uneven. Zhong Nanshan, an academician of the Chinese Academy of Engineering, previously told the media that even if a new crown vaccine is already available, even if the global death rate of new crown pneumonia is only 2%, it is still too high for China, and the cost of relaxing epidemic prevention measures too quickly is too high.

Second, the CCP will hold its 20th National Congress in October 2022, at which the CCP will undergo a leadership change. The current leader, Xi Jinping, is widely expected to start a third term, given China’s previous amendments to its constitution that removed term limits for the president.

The BBC previously reported that if the crisis brought about by Omicron was a few years away from the 20th National Congress, the atmosphere might be different. However, it is only a few months away. Moreover, the current new crown has severely hit China’s economy, but it is too late to abandon the “clearing” policy before the party congress. Xi will have to get through it and hope there will be no more city-wide lockdowns before his new term.