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(Bloomberg) — China’s leaders will have the opportunity to review this year’s ambitious official economic expansion target at an assembly of key policymakers expected this week.
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The Politburo – the country’s main decision-making framework – holds its July assembly at the end of the month, when its 25 members assess the functioning of the economy in the first part of the year and set priorities for the rest of the year.
The upcoming assembly is of greater importance as it provides an opportunity for leaders to recalibrate their strategy and expectations after Covid outbreaks and lockdowns this spring almost led the economy to contract.
Here’s what you should look for in the meeting.
growth objective
Analysts will watch closely whether the government adjusts or downplays its full-year expansion target of “around 5. 5%,” which it announced in March before Covid and lockdowns to involve it began wreaking havoc on the economy. Economists expect China to miss this target by a lot.
“The maximum progression of this assembly will likely be a form of official return” of the target, analysts at Beijing-based consultancy Trivium China wrote. the goal of real-time expansion. “
There are signs that the government would possibly replace the rhetoric around this purpose or downplay its importance, rather than simply convert it. Focusing on employment rather than overall expansion is an option, economists at Citigroup Inc. wrote, adding Yu Xiangrong in a note.
Premier Li Keqiang recently pointed out that the government will not meet the official target, as long as employment and costs are stable. And Li is the only one softening the language about the government’s goals.
Last month, President Xi Jinping vowed to stick to the country’s Covid Zero policy and said the government would “temporarily prefer a bit of economic progression” rather than threatening people’s lives and health.
Another tactic may be to simply make “about 5. 5%” a target for the current part of the year, which for the 2022 total, Citi economists wrote. After surpassing just 2. 5% in the first part of the year, GDP expansion is expected to rise to more than 7% for the rest of the year to get closer to the existing target, other economists said.
Policy support
Additional policies might not be on the table, at least not yet.
Beijing is under pressure that its strategy is not to “flood” the economy with large amounts of stimulus measures, and that position is unlikely to change.
Much remains to be done to put existing policies into effect, Premier Li said recently, referring to the package of measures presented in May to businesses and stimulate demand. this before launching new initiatives.
Similarly, the central bank maintained a cautious stance on easing, saying that “liquidity has remained more than abundant. “
However, the Politburo could track an increase in budget support. One option through the Ministry of Finance would be to allow local governments to sell an additional 1. 5 trillion yuan ($222 billion) of special bonds in the current part of this year. Bloomberg reported earlier this month. This would add to the record sale of local government bonds in the first part of the year and could further increase infrastructure spending.
Property Rescue
The real estate market’s one-year slump will likely be in the midst of Politburo concerns, with the recent wave of other people not paying their mortgages threatening to further plummet sales and hurt banks and builders.
Most likely, the Politburo will repeat that “housing is made for living, for speculation,” an old government precept aimed at reducing speculative purchases.
The market will be watching to see if such words hold up in the statement, said Liu Peiqian, lead China economist at NatWest Group Plc. rest of the year.
With sales and costs falling for about a year and several corporations unable to pay their debts and delaying or stopping construction, senior executives can also consider guidance to support demand in the housing market and support developers.
“Regulators and local governments would likely be asked to facilitate the financing of unfinished projects or the acquisition of unfinished projects” through public developers, economists at Standard Chartered Plc wrote in a note. housing market and save systemic risks” ahead of the Communist Party congress later this year, at which Xi is expected to be shown as leader for five years.
covid zero
China’s Covid Zero method of containing the virus is expected to continue for now, the Politburo could shed light on how the government intends to optimize its strategy to minimize economic disruption.
Any adjustment to the wording used to communicate about Covid Zero, adding anything that lays the groundwork for an imaginable exit from the strategy, would be important, as China’s booming business cycle and recession has been linked to outbreaks and the government’s response.
The assembly “would show policymakers’ newest mind on how to strike a balance between zero-Covid and economic recovery,” Larry Hu, head of China’s economy at Macquarie Group Ltd. wrote in a note. “At the moment, the task is to extra Zero-Covid so that it can be less and less disruptive to the economy. “
China has made some adjustments to the Covid Zero policy by shortening quarantine times for incoming travelers to less than two weeks and reducing the number of times other people want to get tested. However, there is no sign of a basic replacement of the policy of looking to prevent infections by quarantining all instances and closing entire cities.
With newer variants of the virus even more contagious, this means that the rest of the year will most likely see a continuation of the current start-and-stop situation, where restrictions are eased to encourage economic activity, followed by a majority likely accumulating infections and then additional restrictions.
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