SINGAPORE – China’s central bank has turned the tide on economic growth by boosting lending to households and businesses, as the world’s second-largest economy suffers its worst Covid-19 outbreak since the pandemic began.
Economists say the policy change will have little impact, as repeated shutdowns, continued overcrowding and demand for Chinese exports mean credit appetite is weak.
However, the move, which was announced earlier in the week by China’s State Council, which serves as its cabinet, still reflects growing gloom as authorities impose nationwide restrictions to contain the disease.
The People’s Bank of China said on Friday that it would cut the bank’s reserve requirement ratio by 0.25 percent, thereby reducing the amount of money banks have to maintain. The move should free up about 500 billion yuan, equivalent to $70 billion, which banks can channel into new lending.
The cut, which will bring the deposit ratio across all banks to 7.8%, will take effect on December 5, the central bank said. The PBOC lowered the rate again in April, as its economy struggled during the two-month shutdown in Shanghai, China’s financial and commercial hub.
Beijing’s war on HIV is sending a strong signal that the country and its leaders are not ready for a long-term reopening after other major countries have lifted almost all Covid restrictions.
Chinese leader Xi Jinping’s victory in a third term in power at the Communist Party meeting this fall has fueled investors’ hopes for a move away from Beijing’s zero-tolerance policy.
In November, the government released a 20-point plan to improve virus control measures, such as reducing quarantine periods and easing restrictions on people close to confirmed cases, raising hopes for China’s economic recovery.
But the recent explosion has dampened hopes for a moderate and pro-growth strategy, at least for now.
China reported 32,000 new local infections on Thursday, a new daily increase. More than 60% were found in southern Guangdong, the central city of Chongqing, Beijing, and the surrounding province of Hebei, according to China’s National Health Commission.
In the capital, where the number has risen to more than 1,800 in recent days, the measures to control Covid have been as strict as in April and May, when many businesses closed and movement was severely restricted due to the number of infections.
On Friday, some streets in central Beijing that are usually busy were empty. The city has asked many people to stay at home, with many schools and businesses closed this week. Many homes and apartments have been locked down after the cases were discovered, with workers in hazmat suits manning the entrances.
Although many shops and restaurants have stopped working, supermarkets remain open, and officials have said that supermarkets will remain open to protect people’s lives. On other delivery programs, grocery delivery services were not available, citing staff shortages.
In the southern city of Guangzhou, the local government said on Friday that the rapid rise in the epidemic was beginning to moderate as the number of new cases slowed. Public transport in the closed district will resume operations from Monday, the city government said.
Economists at Goldman Sachs on Friday said in a report that they estimate that regions that account for about 65% of China’s annual exports are classified by the government as high-risk areas and restrictions on trade and daily life.
The decline in business survey figures and the drop in exports were indicative of slow growth even before the ban. China’s economy is also struggling with an over-indebted housing sector, unfinished projects and declining trade, and is facing new challenges from the US’s decision to ban Chinese exports of high-tech chips and technology.
Lockdowns in the past have closed restaurants, domestic tourism and squeezed factory production by increasing traffic. China’s economy grew by 0.4% year-on-year in the second quarter, an increase from earlier figures.
–Xiao Xiao and Yoko Kubota in Beijing contributed to this article.
Contact Jason Douglas at [email protected] and Raffaele Huang at [email protected]
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