China has launched 33 new measures to boost domestic consumption and investment in a bid to regain growth momentum as the economy bogs down under Covid lockdowns and related industry curbs.
An executive meeting of the State Council announced on Monday a plan to boost overall tax relief this year to 2.64 trillion yuan (US$396 billion) from the 2.5 trillion yuan originally announced in March.
The council also said the government would reduce taxes for automobile buyers and provide emergency loans to airlines. Meanwhile, more than 40 Chinese cities have recently eased their property rules in a bid to encourage people to buy second homes.
But with sagging job markets and strict Covid lockdowns, China’s domestic consumption and property markets will remain sluggish for the foreseeable future, according to some economists. To stimulate economic growth more sustainably, they suggest the government needs to boost its investment in infrastructure.
The epidemic situation in Shanghai has started to improve since the beginning of the month but lockdown measures are still in place in areas home to about 1.89 million people as of Tuesday. The largest commercial city in China reported 58 Covid infections and 422 asymptomatic cases on Monday, all of which were identified in closed loop environments.
In Beijing, the government said it found 41 Covid patients plus seven asymptomatic cases on Monday. The capital city will continue to encourage people to stay home this week until at least Saturday. It said there were 10 high-risk and 25 medium-risk districts in the city.
Economic indicators in April showed that China’s economy was hit hard by the city lockdowns. Domestic consumption fell 11.1% in April from a year ago while industrial added value dropped 2.9%.
In property markets, sales of residential floor area slumped 42.5% to 74.17 million square meters in April compared to 2021, according to the National Bureau of Statistics. Investment in property development dropped 10.1% over the period.
Other sectors including automobile and aviation were also affected by the stringent Covid rules. The sales of automobiles in China dropped 47.6% year-on-year to 1.18 million units in April while auto sales in Shanghai fell to zero.
The number of air passengers decreased 80% last month from a year ago and was only about 17% of the level seen in 2019, according to Guotai Junan Securities.
To counter these downtrends, the State Council unveiled on Monday 33 new stimulus measures including tax rebates, subsidies and low-cost loans to support companies across different sectors and boost domestic consumption.
It said the central government would increase tax refunds by over 140 billion yuan this year while allowing small businesses and companies in Covid-stricken industries to defer payments of up to 320 billion yuan on some social insurance programs until the end of the year.
To support the auto sector, the government will relax car purchase restrictions and reduce purchase taxes on some passenger cars by 60 billion yuan. It will also defer principal and interest payments on 90 billion yuan worth of commercial truck loans extended by central government-owned carmakers.
The amount of emergency loans to airlines will be increased by 150 billion yuan and the industry will be supported to issue bonds worth 200 billion yuan.
The State Council said the government would start constructing projects for irrigation facilities, transportation hubs and residential community renovation, and guide banks to provide long-term loans for these projects. It would start a new round of rural road construction projects and support the issuance of 300 billion yuan worth of railway construction bonds.
“An obvious consequence of the ‘zero-Covid’ strategy is its negative impact on household consumption, especially in the service sector,” said Alicia Garcia Herrero, chief economist for the Asia-Pacific at Natixis. “The hovering uncertainties are also impacting investment in recent months.”
Garcia Herrero said China has announced huge infrastructure projects to be financed by local governments’ issuance of special purpose bonds but the impact on the economy was not yet visible.
“We do not expect China to achieve its 5.5% GDP growth target in 2022. So far, we have shaved off 1.5 percentage points due to Covid restrictions to 4.2% for 2022 but more might be needed if mobility restrictions remain throughout May and beyond, and infrastructure stimulus cannot be executed at such a big scale,” she said.
China’s domestic consumption has remained weak due to deteriorating job markets, said some analysts. In April, the unemployment rate in urban areas rose to 6.1% from 5.8% in March. For the 16 to 24 age group, unemployment surged to 18.2% from 16% over the same period.
To boost property sales, most Chinese cities have started relaxing their property curbs since April. On Sunday, local governments in Wuhan and Jinan announced they would allow families with two children to buy second homes in some districts. Last week, Hangzhou said it would allow families with three children to buy second homes.
While it will take some time for all these measures to take stimulatory effect, Beijing is clearly trying to boost economic growth with direct state investments.
China Energy Investment Corp, for instance, announced on Monday it will invest 86.1 billion yuan to build 11 power projects this year with a total capacity of 12.38 million kilowatts.
The projects will include the construction of new onshore energy bases, wind power, hydropower and natural gas power plants. China will also expand its coal power generation.
The National Energy Administration said China’s investment in solar power increased 204% year-on-year to 29 billion yuan between January and April and would probably grow at the same pace for the rest of this year.
Read: China’s aviation sector hopes to rebound in summer
Follow Jeff Pao on Twitter at @jeffpao3