China’s central bank unveiled measures to support the economy after official data highlighted the worsening impact of a wave of lockdowns on consumer activity.
The 23 measures, which were published late on Monday, encouraged financial institutions to support local government infrastructure projects and the country’s struggling property sector, as well as provide financial services to industries hit by the pandemic.
China’s monetary policy has come under growing pressure from a property slowdown and wider loss of economic momentum, which has been exacerbated in recent weeks by a spate of lockdowns that aim to curb the country’s worst Covid-19 outbreak in two years.
Shanghai, the country’s biggest city and financial hub, imposed a citywide lockdown in late March and remains largely sealed off, while restrictions have since spread to dozens of other cities.
On Friday, the People’s Bank of China cut the reserve requirement ratio for banks by 25 basis points, a method of injecting more liquidity into the financial system that is part of a gradual easing cycle. The PBoC has stopped short of any dramatic shifts in policy.
Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, the French investment bank, said the PBoC “has been quite cautious” and pointed to an expectation “that fiscal policy could also share more responsibility of supporting growth at the current juncture”.
On Monday, data published by the National Bureau of Statistics showed China’s economy grew 4.8 per cent in the first quarter compared to the same period last year, beating expectations and surpassing the year-on-year growth rate in the previous quarter.
But statistics for March revealed a contraction in retail sales for the first time since July 2020, highlighting the effect of the government’s strict zero-Covid approach.
Economists expect activity in April to worsen and several banks have lowered their projections for economic growth for 2022.
Standard Chartered this week lowered its forecast for the second quarter to 3.5 per cent from 5 per cent, while Barclays cut its full-year estimate from 4.5 to 4.3 per cent.
The government has set a target of 5.5 per cent, its lowest in three decades.
“If there is a monthly year-on-year real GDP growth measure, we believe it will most likely be negative in April,” noted Ting Lu, chief China economist at Nomura. He thought there could be “notable downside risks” to the bank’s own forecast of 4.3 per cent growth.
“We still believe global markets underestimate China’s growth slowdown and supply chain stress, which we feel are set to ripple to the rest of the world,” he added.
Analysts at Goldman Sachs said they “continue to expect fast credit growth and more expansionary fiscal policies to help buffer downward pressures on growth from strict anti-pandemic measures”. But they suggested the PBoC decision reduced the chances of a broad interest rate cut and easing was more likely to come through targeted measures.
The PBoC in January reduced the benchmark rate for mortgage lending for the first time in nearly two years.