China fails to come up with a plan to ease its economic malaise

On Wednesday, Prime Minister Li Keqiang issued a grim warning about the perilous state of China’s economy, telling more than 100,000 officials in a nationwide videoconference that they urgently needed to boost growth, reduce unemployment and securing the summer cereal harvest.

But the absence of concrete new initiatives from the central government and the weak media coverage of the event suggest that there is still no easy way out of the economic crisis triggered by the controversial zero Covid policy. of President Xi Jinping. The strategy has brought business activity to or near halt in dozens of cities over the past three months.

Just hours after Li spoke, China’s state-run television main evening news buried a brief and very toned down version of his remarks in the middle of its bulletin. Instead, he began with a lengthy article about Chinese police officers – who pride themselves on being “the handle of the knife of the Chinese Communist Party” – praising Xi.

The footage showed more than 1,400 uniformed officers applauding Xi and carried a clear message to executives across the country that growing concerns about the world’s second-largest economy would not supplant pandemic control as a party priority.

“After watching the news, it’s quite desperate,” said a government official in eastern Jiangsu province, which is trying to help revive the local economy. “There was a lot more coverage of everyone cheering [Xi].”

Xi Jinping remains committed to his controversial zero Covid strategy © Leo Ramirez/AFP/Getty Images

Li and Yi Gang, the central bank governor, added to the unease of local officials when they suggested there was relatively little the government was willing or able to do to help them, even if the Economic challenges, according to the prime minister, were “to some extent greater than those experienced in 2020”, when the Covid pandemic broke out in the central province of Hubei.

In the first quarter of 2020, China’s economy contracted 6.9% year-on-year, the first officially recognized annual decline in more than 40 years.

Li even raised the specter of potential food shortages. While most of the international attention has focused on Shanghai’s tough measures, which began in late March and have only gradually begun to ease over the past week, lockdowns and transportation restrictions regional also affected large agricultural regions, such as the province of Jilin.

“The harvest absolutely cannot stop,” he told officials, according to an unofficial transcript of Wednesday’s emergency meeting that was confirmed by three people briefed on the prime minister’s comments. “[Food security] is a fundamental responsibility of the local party [cadres] and governments. If you can’t stabilize [agricultural] production, you will be held responsible.

Li and Yi, however, offered only a modest expansion of a corporate tax relief initiative and new policy loans of Rmb800 billion ($118.7 billion), an amount equivalent to only 0.7% of gross domestic product.

At the height of the global financial crisis in 2008 and 2009, Beijing unleashed a stimulus effort equivalent to 13% of annual economic output.

“Recently, some provinces have submitted reports to the Council of State [China’s cabinet] ask to borrow money,” Li said.[But current] transfer payments to local governments are the largest in history. . . So let me give you the final result, the rest is up to your local governments.

Analysts say that in areas where strict lockdowns have undermined business and consumer demand, more bank credit is about as effective as – in the analogy attributed to John Maynard Keynes – “pushing on a piece of string “.

“Without central government intervention, the rise in budget support is capped,” said Trey McArver of Trivium, a Beijing-based consultancy. “A V-shaped recovery is extremely unlikely.”

David Zhang, owner of a small market research firm in Beijing, said “cheap loans for SMEs won’t help me – my problem is lack of business and rising operating costs “.

Zhang, whose income has fallen more than 50% in recent months, added that “the situation is worse than in 2020”.

Many small business owners also complain that Li’s tax refunds often come with strings attached that make them unclaimable for struggling small and medium-sized businesses.

In some areas, cash-strapped local tax offices will only provide tax relief to one party in a given transaction, which is typically captured by large state-owned companies and foreign investors at the expense of their SME suppliers. smaller and mainly from the private sector.

“Most of our clients are bigger than us and there’s no way they’re giving up tax benefits to help us,” said Li Bin, who runs a small advertising agency in Nanjing, near Shanghai. “We are too small to force our customers to sacrifice themselves for us.

“Business is very bad. »