China’s central bank on Monday cut its key interest rate in the face of slow economic expansion at a politically sensitive time as President Xi Jinping seeks to increase his grip on power.
The resolution suggests Beijing is temporarily setting aside considerations on maximum debt to avoid a collapse before Xi tries to secure a third five-year term as Communist Party chief at an assembly this fall.
The ruling party has said well that it cannot reach the official 5. 5% expansion target this year after anti-virus measures disrupted trade, production and customer spending. drop in sales and home construction.
“The momentum of the economic recovery has slowed,” government spokesman Fu Linghui told a news conference. “More efforts are being made to consolidate the foundations of economic recovery. “
The People’s Bank of China cut the rate on a one-year loan from 2. 85 to 2. 75 and injected another 400 billion yuan ($60 billion) into lending markets after expanding trade production and retail sales weakened in July and home sales fell by double digits. .
The central bank “seems to have that it now has a more urgent problem,” Julian Evans-Pritchard of Capital Economics said in a report.
The slowdown adds to political hurdles for Xi, China’s toughest leader since at least the 1980s. He is still expected to succeed, but some analysts say he may be forced to compromise by sharing more of his extensive powers with other party leaders.
Despite downward pressure on expansion, party leaders affirmed their commitment to the “zero-COVID” strategy in a July 29 statement. It removed previous references to expansion targets after the economy grew 2. 5% year-over-year in the first part of 2022.
Manufacturing output expansion in July slowed to 3. 8% a year ago, down 0. 1 points from last month, according to the National Bureau of Statistics. Customer spending growth fell to 2. 7%, down 0. 4 points from June.
Sales of housing and advertising real estate fell 28. 8% from a year earlier.
Beijing is forcing developers into debt levels, causing the economic expansion to plummet in mid-2021, disrupting recovery from the coronavirus pandemic. The crackdown has bankrupted small developers and fueled fears of a default through the largest group, Evergrande, which owes $310 billion. to banks and bondholders.
The “downward trend” in real estate has a “big impact on economic growth,” said Fu, the government spokesman.
The rate cut and additional cash for loans are small for China’s $17 trillion a year economy, the largest in the world at the time. .
The ruling party is struggling to revive activity after Shanghai, the country’s advertising capital, and other advertising hubs closed for weeks since last March to combat virus outbreaks.
Officials at the shanghai port, the world’s busiest, say shipments are back to normal, but economists say it may be months before smartphones, appliances, customers’ electronics and other goods across complex lines of origin are fully recovered.
An earlier brand survey showed that activity in July had contracted. Indicators of new orders, exports and employment declined.
Retail sales fell 0. 7% from a year earlier in the first half after falling 11% in April following the temporary closure of Shanghai and other cities.
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