China’s Xi calls for ‘all-out’ infrastructure splurge to save economy

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President Xi Jinping told a meeting of senior economic officials on Tuesday that “everything must be done” to boost construction to boost domestic demand and boost growth.

He said the country’s infrastructure was still “incompatible” with national development and security needs, according to the state-run Xinhua News Agency. Xi called for more projects in transportation, energy and water conservation, as well as new facilities for supercomputing, cloud computing and artificial intelligence.

He did not elaborate on how much China plans to spend on the new infrastructure push. 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 — who rarely goes out detailed economic plans, leave that to its Prime Minister Li Keqiang – indicate Beijing is increasingly concerned on the country’s deteriorating growth prospects, falling back on policies it had downplayed in recent years to ease pressure on local public finances and promote growth through consumption.

But Covid lockdowns have brought the world’s second-largest economy “near breaking point,” analysts at Société Générale wrote earlier this week. However, the severe restrictions in Shanghai and other major Chinese cities are only the final blow. China was already feeling the impact of a real estate crisis and a crackdown on private companies. Unemployment reached its 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 it expected growth of 4.4% this year, down from a previous forecast of 4.8%, citing risks from Beijing’s strict zero-covid policy. This is well below China’s official forecast of about 5.5%.

“The [Tuesday’s] meeting suggests to us that Chinese policymakers are increasingly aware of the strong headwinds to growth due to Covid restrictions and the ongoing real estate downturn, and [are] making them more determined to step up policy easing measures,” Goldman Sachs analysts wrote on Wednesday.

Citi analysts, meanwhile, believe China’s infrastructure investment is likely to increase by 8% in 2022, well ahead of the 0.4% increase in 2021.

“The infrastructure push is real,” they wrote in a note on Wednesday. “The turning point for real policy action may have arrived and the stimulus is likely to become more apparent from the end of the second quarter.”

This is not the only step Chinese policymakers have taken this week to calm nerves and boost growth. On Monday, the People’s Bank of China cut the amount banks must hold in foreign currency as reserves from 9% to 8%. This move would effectively increase the supply of dollars in the market, and analysts widely believe the decision is intended to stop a rapid decline in the yuan.

The Chinese currency has weakened rapidly in recent days, falling to its lowest level since November 2020, as rising Covid-19 cases in Beijing raised fears that the Chinese capital could join Shanghai and other major cities in lockdown.
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Chinese stocks also sank 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 data from Refinitiv Eikon.

The market shutdown comes as China remains determined to maintain its strict Covid restrictions despite the high economic price. Shanghai’s financial and manufacturing center has been shut down for about a month, forcing businesses to close and exacerbating global supply chain disruption.

Beijing began massive tests on Monday for its 21 million residents to contain a “rapid and furious” outbreak, a city government spokesman said.



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