President Xi Jinping told a meeting of senior economic officials on Tuesday that “every effort” should be made to boost construction to boost domestic demand and boost growth.
He said the nation’s infrastructure was still “incompatible” with national development and security needs, according to the state-run Xinhua news agency. He called for more projects in the fields of transport, energy and water protection, as well as new facilities for supercomputers, cloud computing and artificial intelligence.
He did not specify how much China plans to spend on the new infrastructure. According to the latest government statistics, investment in infrastructure has already increased by 8.5% in the first quarter of 2022 compared to a year earlier.
Xi’s comments – which rarely sets out detailed economic plans, leaving it to his prime minister Li Keqiang – show that Beijing is becoming increasingly concerned about the country’s deteriorating growth prospects and is abandoning a policy that has been downplaying in recent years to relieving pressure on local government finances and promoting growth through consumption.
But the blockade of Covid brought the world’s second-largest economy “close to breaking point,” analysts at Société Générale wrote earlier this week. However, strict restrictions in Shanghai and other major Chinese cities are only the latest blow. China is already feeling the effects of the decline in real estate and the crackdown on private companies. Unemployment peaked at a 21-month high in March.
A number of investment banks have lowered their forecasts for Chinese growth over the past month. And the International Monetary Fund said last week that it expects growth of 4.4% this year, which is lower than the previous forecast of 4.8%, citing risks from Beijing’s tough policy on zero Covid. This is well below China’s official forecast of about 5.5%.
“IN [Tuesday’s] our meeting suggests that Chinese politicians are increasingly aware of the strong cross-wind from Covid’s restrictions and the continuing decline in property, and [are] in this way, they become more determined to step up policy easing measures, “Goldman Sachs analysts wrote on Wednesday.
Meanwhile, Citi analysts believe that investment in China’s infrastructure is likely to grow by 8% in 2022, sharply higher than the increase of 0.4% in 2021.
“The infrastructure boost is real,” they wrote in a note Wednesday. “The turning point for real political action may have occurred and the incentives are likely to be more apparent from the end of the second quarter.
This is not the only move made by Chinese politicians this week to calm nerves and stimulate growth. On Monday, the People’s Bank of China reduced the amount of foreign exchange reserves that banks must hold as reserves to 8% from 9%. This move would effectively increase the supply of dollars in the market, and analysts widely believe that the decision is aimed at halting the rapid decline of the yuan.
The Chinese currency has weakened rapidly in recent days, falling to its lowest level since November 2020, as growing Covid-19 cases in Beijing have raised fears that the Chinese capital could join Shanghai and other major cities in blockade.
Chinese stocks also plunged deeper into a bear market earlier this week, with the Shanghai Composite Index falling 21% so far this year, making it the world’s second-worst-performing market after Russia, according to Refinitiv Eikon .
The market crash comes as China remains determined to maintain its tight restrictions on Covid despite the huge economic cost. The financial and manufacturing center in Shanghai has been blocked for about a month, forcing businesses to close and exacerbating the disruption of the global supply chain.
Beijing began mass tests Monday on its 21 million people to contain a “fast and furious” epidemic, a city government spokesman said.
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