China pledges support to ailing economy, analysts doubt impact

China has pledged tax cuts and infrastructure spending to support economic growth as economists cast doubts on a strong recovery of the world’s second-largest economy as long as lockdowns continue.

Beijing will increase annual tax cuts by more than 140 billion yuan ($21 billion) to 2.64 trillion yuan, offer tax cuts to more economic sectors and postpone social security payments worth 320 billion yuan until the end of the year, the state announced. run Xinhua news agency Monday quoted the State Council, the Chinese cabinet.

Other measures include 150 billion yuan ($22.5 billion) in emergency loans for the struggling aviation sector, the issuance of 300 billion yuan ($45 billion) in bonds to finance railway construction, and investment in new projects in the field. areas of energy, transport and water conservation.

“Currently, the downward pressure on the economy continues to build and it is very difficult for many market entities,” the cabinet said, Xinhua said.

China’s leaders have pledged to ramp up support for the faltering economy, even as they redouble an ultra-strict “dynamic zero-COVID” policy that millions locked in their homes, factories shut down and supply chains in disarray

Carsten Holz, an expert on the Chinese economy at the Hong Kong University of Science and Technology, doubted the measures would boost the economy as long as the lockdowns continue.

“Tax cuts, rebates and deferred Social Security payments will have no effect on the economy unless the extra funds can be spent in the hands of the public – not possible in lockdown – and the public is willing to spend the funds – less likely in times of uncertainty Holz told Al Jazeera.

“I’m just not optimistic about economic growth in the PRC for this year – and not even for the future, due to the long-term system characteristics and traditional economic development trajectories,” added Holz, referring to China’s official name. , the People’s Republic of China.

Iris Pang, chief economist for Greater China at ING, said the stimulus is “not small”, but its impact will depend on the severity of restrictions going forward.

“It’s at least 3.76 percent of gross domestic product in 2022,” Pang told Al Jazeera. “Whether this is enough depends on how flexible the upcoming lockdowns will be.”

China has set an ambitious target of around 5.5 percent growth by 2022 [File: Thomas White/Reuters]

China’s retail sales and industrial production fell in April to its lowest level since the early days of the pandemic, when draconian pandemic restrictions brought major cities, including Shanghai and Beijing, to a standstill.

Beijing has set itself an ambitious target of around 5.5 percent growth by 2022, which many economists believe is unrealistic given the mounting toll of lockdowns and the lack of a timetable to get past draconian controls for good.

In addition to fiscal measures, China has also embarked on a looser monetary policy, cutting the benchmark mortgage interest rate by more than expected 0.15 percentage points last week.

Gary Ng, senior economist at Natixis in Hong Kong, said China’s fiscal stimulus may be less effective this time around than it was during the early days of the pandemic.

“In a sense, China’s success story in 2020 depends not only on the supportive fiscal stimulus, but also on the eased mobility restrictions after the early containment of the virus. However, the world has changed and the virus has evolved into more transmissible variants,” Ng told Al Jazeera.

“So if the zero-COVID strategy continues, businesses and households will still find it difficult to invest and consume, despite more substantial aid from the Chinese government. Fiscal policy may not be as effective as before if on-and-off lockdowns hinder normal economic activity.”

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