China cuts rates as lockdowns destroy real estate sales and retail spending

The focus is now on whether government stimulus measures will be enough to avert the damage of the latest lockdowns, some of which are likely to continue well into next year Xi Jinping Redoubles Efforts To Achieve Zero Cases despite warnings from the World Health Organization (WHO) that the policy is untenable.

China’s massive real estate market is the latest concern after data released Friday showed a slump in new lending in April to its lowest level in four years.

The People’s Bank of China (PBoC) announced Sunday evening (AEST) that the minimum mortgage rate for first-time home buyers has been lowered from 4.6 percent to 4.4 percent. Analysts said the unexpected move would open the door for broader rate cuts, although the PBoC did not go ahead with a cut in its medium-term credit facility rate Monday as some had expected.

For the first time in decades, economists are questioning whether the Chinese government can meet its annual growth forecast, with some warning that the economy will never regain its pre-pandemic strengths. In the long run, this could undermine demand for important Australian exports, such as iron ore.

“We are pessimistic about China’s medium-term outlook. The authorities are expected to phase out their support measures next year. This coincides with an uncertain global outlook, with growth in the US likely to slow,” said ANZ’s chief economist for Greater China, Raymond Yeung.

ANZ lowered its GDP forecast for China in 2023 on Monday to 4.2 percent from 5.1 percent amid concerns the government would introduce stimulus measures in advance before withdrawing them afterwards. Mr Xi to be reinstated as president for a third term, as expected later this year

Subsequently, the government’s focus was expected to return to deleveraging, while the shine comes from China’s manufacturing sector.

“While China will maintain its competitive advantage with its manufacturing quality and large consumer market, many multinational companies are likely to reassess the level of operational risk in China. Access to foreign technology and business know-how will become increasingly difficult,” Yeung said.

A health worker pushes a cart past shuttered restaurants at a shopping center in Beijing’s Chaoyang district. AP

ANZ maintained its GDP forecast for 2022 at 5 percent. The Chinese government’s target is 5.5 percent.

A declining real estate sector is another challenge for Mr Xi as the Chinese economy struggles to offset the damage from global supply chain disruptions and COVID-19 lockdowns across the country. Data released Monday showed that the volume of new home sales fell to 39 percent in April, while sales by value fell 46.6 percent.

The latest economic data adds to mounting pressure on the Chinese government to launch new incentives to stabilize the economy. While Mr Xi has signaled a boom in infrastructure spending, lockdowns and travel restrictions have slowed construction and other activities.

Jing Liu, senior economist Jing Liu, HSBC’s Great China senior economist Jing Liu, said: “The broad impact on growth will require stronger policy impetus on all fronts — fiscal, monetary, real estate and regulatory — to drive growth in the coming years.” months to stabilize as the situation in Omicron is better under control, he said.

“Fiscal support will come from tax cuts and increased pressure on infrastructure investment from the continued issuance of special local government bonds. Monetary policy easing will come through a mix of policy tools, including liquidity injections and targeted credit support, such as through re-lending quotas.”

Fixed asset investment continued to be more resilient in April, rising 6.8 percent in the first four months of the year.

The main driver of the weak economic activity was due to a series of lockdowns across the country, with Shanghai being the hardest hit.

Shanghai Deputy Mayor Zong Ming gave one of the clearest leads yet on Monday about plans to return life to normal in the city of 25 million. He said a phased reopening would take place from May 21, with daily life “normalizing” by the end of June unless there were another wave of infections.

However, economists fear that even if the lockdown ends in Shanghai, the risk of further restrictions on cities and manufacturing centers across the country remains high, given the difficulty in curbing the ommicron variant. Neighboring Taiwan has nearly abandoned its COVID-19 zero strategy after the number of cases increased there.

“While the worst is hopefully behind us, we think the Chinese economy will remain relatively weak in the coming quarters, with manufacturing struggling to return to pre-pandemic trend,” said Julian Evans-Pritchard, senior economist from Capital Economics.


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