China’s central government urged the top 10 provinces with the strongest gross domestic products to launch all possible measures this month to boost China’s economic growth in the second quarter.
Premier Li Keqiang, a standing committee member of the politburo of the Communist Party of China’s (CPC) Central Committee, met the governors of 12 provinces, including the top 10 economic contributors, at a symposium in Yunnan on Wednesday and highlighted efforts to stabilize economic growth and create jobs.
Li called for supporting the platform economy, stabilizing property prices and promoting consumption to make sure economic growth in the first half stays within a reasonable range.
However, Goldman Sachs and UBS on Wednesday lowered their China GDP forecasts for the second quarter to below 2%, and said it was unlikely China would achieve its full-year GDP target of 5.5%.
Meanwhile, Wang Yang, the chairman of the Chinese People’s Political Consultative Conference (CPPCC) and a standing committee member of the politburo, on Tuesday held a forum to promote the platform economy.
But the good news only had a short-term impact on stock markets. On Thursday, Hong Kong’s technology stocks slumped after the Dow Jones Index fell more than 1,100 points overnight.
The economic indicators unveiled by the National Bureau of Statistics (NBS) on Monday showed that China’s economy was seriously hurt by virus outbreaks and city lockdowns last month.
Numbers tell the story
China’s domestic consumption fell 11.1% in April from a year ago, while industrial added value dropped 2.9%. In April, the unemployment rate in urban areas rose to 6.1% from 5.8% in March. In the age group between 16 and 24, unemployment surged to 18.2% from 16% for the same period.
Sales of residential floor area slumped 42.5% to 74.17 million square meters in April from a year ago, according to the NBS. Investment in property development dropped 10.1% for the same period.
Separately, the China Association of Automobile Manufacturers said the production of automobiles in the country fell 46.1% to 1.21 million units in April from a year ago, while the sales of automobiles dropped 47.6% to 1.18 million units.
The Shanghai Automobile Sales Trade Association said auto sales in Shanghai fell to zero last month due to lockdowns, compared with 118,000 units in the first quarter.
On Wednesday Li, who has turned politically high-profile after a politburo meeting on April 29, blamed the new wave of domestic Covid-19 resurgences and changes in the international situation for increasing downward pressure on the Chinese economy.
“We should strengthen our confidence as China still has more than 150 million market entities with strong resilience, while prices remain generally stable,” Li said. “We have always insisted on avoiding ‘flood-like’ stimulus. We didn’t issue excess paper currency, even when Covid-19 hit us the hardest in 2020.”
Li said there was still room for policy maneuver in the face of new challenges.
“All regions and departments must have a sense of urgency to put forward more measures in May, in order to quickly bring the economy back on track,” Li said.
The country would encourage companies in the platform economy to go public in domestic and overseas markets in accordance with the laws and regulations, he added.
Li calls for support
Li’s calls to support the platform economy and stabilize property prices are apparently going in the opposite direction from President Xi Jinping’s decisions last year to curb the technology and property sectors.
Wang also held a forum with about 100 CPPCC members on Tuesday, calling on them to support the platform economy. The attendants included Qihoo 360 chairperson Zhou Hongyi, Baidu co-founder Robin Li and NetEase founder and chief executive William Ding.
Due to this positive news, American Depository Receipts (ADRs) of Chinese internet giants, including JD.com, Pinduoduo, Didi, Baidu and Alibaba, surged 8% to 9% within the first trading hour on the US bourse on Tuesday, but then eased.
After the Dow Jones Index slumped 1,164 points, or 3.57%, on Wednesday, Chinese technology stocks fell 4% to 5% in Hong Kong on Thursday. Tencent’s shares dropped 10% in two days due to its worse-than-expected first-quarter results.
On Wednesday, Goldman Sachs analysts lowered their forecast for China’s GDP from 4.5% to 4% for the full year of 2022 and from 4% to 1.5% for the second quarter. They said such predictions had counted in the factors that the government would launch extra measures, on top of measures to stabilize the property market and control Covid outbreaks.
Earlier this year, China set a 5.5% economic growth figure for 2022, but only achieved 4.8% growth in the first quarter.
Hui Shan, the Chief China Economist at Goldman Sachs, said the weak economic data in April highlighted the tension between China’s growth target and zero-Covid policy. Hui said China might not resume quarantine-free travel before the second quarter of next year, given it had recently announced it would not host the AFC Asian Cup football tournament in June 2023.
A slow recovery
UBS also expected the Chinese economy to grow no more than 2% in the second quarter and 4.2% for 2022 as China would maintain its zero-Covid policy until the end of this year.
Wang Tao, the Chief China Economist at UBS, said the worst of the lockdowns may have ended, but the recovery of domestic consumption would remain slow for some time. Wang said even if the central government launched more supportive measures, they would not be enough to help China achieve its 5.5% growth target this year.
On April 30, the General Office of the State Council issued a document that suggested boosting domestic consumption with 20 new measures. It said it would encourage people in rural areas to buy new cars and smart home appliances.
The China Securities Journal reported that the government could grant a subsidy of 3,000 to 5,000 yuan (US$444 to $739) to automobile buyers from June. Local governments in Guangzhou and Shenzhen also launched campaigns to boost auto sales.
However, it remains unclear whether all these efforts are strong enough to boost overall consumption in June, said some analysts.
Follow Jeff Pao on Twitter at @jeffpao3