China pledges support for ailing economy, analysts doubt impact

Beijing says it will roll out additional tax cuts and postpone social security payments for firms to support growth.

China street
China's lockdowns are hammering the world's second-largest economy [File: Aly Song/Reuters]

China has pledged tax cuts and infrastructure spending to support economic growth, as economists poured doubt on a strong rebound for the world’s second-largest economy as long as lockdowns persist.

Beijing will increase annual tax cuts by more than 140 billion yuan ($21bn) to 2.64 trillion yuan, offer tax rebates to more economic sectors, and postpone social security payments worth 320 billion yuan until the end of the year, the state-run Xinhua news agency quoted the State Council, China’s Cabinet, as saying on Monday.

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

“At present, the downward pressure on the economy continues to increase and it’s very difficult for many market entities,” the cabinet said, according to Xinhua.

China’s leaders have pledged to ramp up support for the flagging economy, even as they double down on an ultra-strict “dynamic zero COVID” policy that has confined millions to their homes, shuttered factories and thrown supply chains into disarray.

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

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

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

Iris Pang, chief economist for Greater China at ING, said the stimulus “isn’t small” but its impact will depend on the severity of restrictions in future.

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

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

China’s retail sales and industrial production in April slumped to their lowest levels since the early days of the pandemic, as draconian pandemic restrictions brought major cities, including Shanghai and Beijing, to a standstill.

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

On top of fiscal measures, China has also set out a looser monetary policy, last week cutting the benchmark reference rate for mortgages by a more than expected 0.15 percentage point.

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

“In a way, the success story of China back in 2020 depends not only on the supportive fiscal stimulus but also on the looser mobility restriction 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 is to remain, corporates and households will still find it difficult to invest and consume despite the more substantial help from the Chinese government. The fiscal policies may not be as effective as before if on-and-off lockdowns prevent normal economic activities.”

Source: Al Jazeera and news agencies