China presents 19 new measures to boost the economy in crisis

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The new measures announced by China’s cabinet on Wednesday add more than 1 trillion yuan ($146 billion) in funding to improve infrastructure, ease electricity shortages and deal with drought, including money to ensure the production of rice. “The current economic recovery has a weak foundation,” the statement said, adding that the new financing was aimed at stabilizing the economy. Premier Li Keqiang hosted the cabinet meeting. Beijing has tried to boost investment and consumption in the world’s second-largest economy more than once this year. In May, the government announced 33 measures to revive growth.

Several major investment banks, including Goldman Sachs and Nomura, cut China’s economic growth forecast for 2022 to 3% or less as the heat wave hit industrial cores.This is well below the 5.5% growth target that the the Chinese government had set earlier this year. China’s main focus remains infrastructure growth.

With the support of the central bank, state-owned development banks can lend $44 billion to finance infrastructure projects , according to communicated This is in addition to the $161 billion already committed in June. Local governments will also be able to issue $73 billion in debt to finance the construction of roads, railways, airports, affordable housing and energy projects. This is on top of the 3.5 trillion yuan ($511 billion) of bonds it was allowed to issue for the same purposes earlier this year. Li also urged all government departments to “do a better job” to fight the drought and mitigate its impacts.

 

He called for more wells to be drilled and more drought-resistant water sources to be developed, as well as cloud seeding, which China resorted to earlier this month to bring more rain to the Yangtze River. “Priority should be given to guaranteeing people’s drinking water and transporting and delivering water when necessary,” Li added. The central government will also draw 10 billion yuan ($1.5 billion) from its reserve fund for drought relief, focusing on securing rice production during the key mid-season rice harvest in the southern region.

“[We should] do everything possible to guarantee agricultural irrigation water and help farmers fight drought and protect their fall crops,” Li said. The government will support research into measures to promote a “blooming harvest. slow” for late-season rice in the fall, he added. Analysts were not optimistic about the impact of the new economic stimulus on the economy. “These measures could help offset the sharp contraction in government revenue and support infrastructure investment growth to some extent in the coming months,” Goldman Sachs analysts said in a closing note.

Wednesday. But they still expect overall growth to remain sluggish for the rest of this year , “barring significant policy easing,” as a “very weak” real estate sector and headwinds from the Covid lockdowns will continue to drag on the economy. The real estate sector, which accounts for up to 30% of GDP in China, which was already suffering from a prolonged cash crunch, is exerting significant pressure.

Rawlings developer Evergrande defaulted on its debt last year. Property prices have been falling, as have new home sales. Angry homebuyers across the country have threatened to default on their mortgages on unfinished homes, roiling markets and prompting companies and authorities to take action to defuse the crisis. Analysts at Nomura said the new stimulus measures would not be a game-changer. The zero-Covid policy continues to consume a large amount of local governments’ fiscal resources,” they said, adding that the real estate sector was “still in deep trouble.”