(Bloomberg) — China’s leaders are under mounting pressure to throw the country’s Covid-stricken economy a lifeline as they gather for a critical meeting in the coming days.
Several prominent policy advisers and Chinese economists have called on the government to take more decisive measures to prop up the economy, ranging from the relaxation of property and internet curbs to acting with more flexibility when it comes to Covid restrictions and lockdowns.
The People’s Bank of China on Tuesday pledged economic support in a bid to reassure jittery investors, and the Communist Party’s Politburo — its top decision-making body — has an opportunity to signal changes this week during its April quarterly meeting to discuss economic issues.
“We should adopt targeted measures that can generate quick results and step up policy support for growth,” said Yang Weimin, a senior economic official at the Chinese People’s Political Consultative Conference, a political advisory body, at a forum in Beijing on Monday.
Read More: PBOC Adviser Calls for Growth-Boosting Policy Amid Yuan Risk
The Politburo’s meeting is coming at a tumultuous time for the world’s second-largest economy, where strict lockdowns are wreaking havoc on consumer spending and snarling supply chains. The government has set a gross domestic product growth target of around 5.5% for this year, which many economists say is slipping further out of reach.
Rising cases in Beijing have prompted mass Covid tests for most of the city and fueled concerns that the Chinese capital of more than 20 million residents may be put under lockdown. Similar curbs lasted a week in Shenzhen but have stretched for much longer in Shanghai.
Fears about the economic toll of Covid Zero have shaken markets desperate for more policy support: The benchmark CSI 300 stock index closed at its lowest level in two years on Monday, while the yuan has tumbled to its weakest level in 17 months.
The People’s Bank of China sought to reassure markets Tuesday with a broad pledge to step up support through targeted financing for small businesses and a quick resolution of an ongoing crackdown on technology firms. The statement followed a move late Monday by the central bank to cut the amount of money that banks need to keep in reserve for their foreign currency holdings, an attempt to bolster the currency after it came under pressure due to large capital outflows.
Those announcements came after the central bank gave banks a modest cash boost earlier this month. The government has also accelerated borrowing and spending this year to increase infrastructure investment.
But overall policy action has been a lot more measured than markets were likely expecting in March, when a pledge by Beijing to ease regulatory crackdowns and stimulate the economy prompted a temporary rebound in stocks that has since evaporated.
Risks of rising capital outflows also remain a concern, as the Federal Reserve is poised to hike interest rates aggressively this year, in contrast to China’s own easing policies.
“New downward pressure on the economy has increased,” Premier Li Keqiang said at a State Council meeting Monday, according to the official Xinhua News Agency. He added that policy should be implemented quickly through the first half of the year to stabilize jobs, prices and the economy.
Here’s a summary of the policy changes that government-linked advisers and economists are calling for:
Property Support
Yang, the political advisory body economist, called on the government to formulate a comprehensive policy framework for China’s embattled property sector. At the Monday forum, he said authorities should clarify its direction for property-related financing, purchasing curbs, as well as policies for taxes and land sales. That messaging would help steady the expectations of developers and residents, and is key to achieving China’s growth goal this year, he added.
Regulators should also ease debt-control policies to help developers survive during this wave of Covid outbreaks, said Sheng Songcheng, a former official at the People’s Bank of China. He said in an interview last week that banks should be allowed to keep providing loans to developers that breach debt metrics known as the “three red lines,” at least temporarily.
So far, at least, China’s central bank appears to be considering options. It met last week with about 20 major banks and asset-management firms to discuss loosening restrictions on some loans, a way to increase support for several distressed developers.
Tech Crackdown
The ongoing downturn among China’s internet giants is also bad for the country’s long-term growth, according to Huang Yiping, a former member of the PBOC’s monetary policy committee. Regulation should be more balanced to ensure the industry’s stable growth, he said on the sidelines of the Boao Forum for Asia last week.
Beijing’s crackdown on Big Tech has been going on for more than a year, hammering the valuations of some of the country’s largest tech firms and clouding their outlook for future growth.
Markets were relieved last month when Beijing vowed to “actively introduce policies that benefit markets,” remarks that reassured investors that the internet regulatory push was nearing its end. Since then, though, investors have grown weary about a lack of follow-through on policy promises.
“The trend in the ‘platform economy’ is worrying over the past year,” said Huang, referring to internet platforms. “The leading companies’ market value has plunged, almost all of them are laying off employees, and new investment has been going down nearly every quarter.”
Household Spending
Huang also called on the government to provide cash subsidies for households and small businesses. Unlike Western countries, China has so far refrained from doing so during the pandemic, instead relying on tax discounts to help small firms.
PBOC adviser Wang Yiming has asked the government to consider such measures, too, saying Sunday at a forum in Beijing that authorities could consider offering subsidies to low-income families.
Read More: China Bets on $1.5 Trillion of Tax Cuts in Quest for Growth
The State Council, China’s cabinet, on Monday issued guidelines for boosting consumption, and encouraged regions to subsidize companies for Covid-related costs where possible.
Government Spending
China could also issue special sovereign bonds to expand government spending this year, similar to the 1 trillion yuan worth of special treasuries issued in 2020 to counter the initial pandemic outbreak.
Special bond issuance would be an important option for the government to consider should Covid outbreaks drag on and the overseas environment deteriorate, said Zhang Deyong, a researcher at the Chinese Academy of Social Sciences, a state think-tank. His remarks were reported Tuesday by the Securities Times, which is run by the People’s Daily, the official newspaper of the Communist Party.
Many economists — including Yang of the Chinese People’s Political Consultative Conference — still point to Covid outbreaks as the country’s core challenge, though. That suggests that policy makers may prioritize containing infections over growing the economy in the short term as they stick with Covid Zero.
“The rebound of Covid outbreaks is the biggest constraint on the economy,” Yang said. “We need to get outbreaks under control with the smallest economic and social price possible. Only after that we can focus on growth with no distraction.”
(Updates with additional statements and actions from the People’s Bank of China, and other context.)
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