BEIJING (AP) – China’s central bank trimmed a key interest rate yesterday to shore up sagging economic growth at a politically sensitive time when President Xi Jinping is trying to extend his hold on power.
The decision suggested Beijing is temporarily setting aside worries over high debt to act to head off a slump before Xi is expected to try to award himself a third five-year term as Communist Party leader at a meeting this fall.
The ruling party has effectively acknowledged it cannot hit this year’s official 5.5 per cent growth target after anti-virus curbs disrupted trade, manufacturing and consumer spending. A crackdown on excessive borrowing in China’s vast real estate industry triggered a plunge in home sales and construction.
“The momentum of economic recovery has slowed,” a government spokesman, Fu Linghui, said at a news conference. “More efforts are needed to consolidate the foundation of economic recovery.”
The People’s Bank of China cut its rate on a one-year loan to 2.75 per cent from 2.85 per cent and injected an extra CNY400 billion (USD60 billion) into lending markets after growth in factory output and retail sales weakened in July and home sales fell by double digits.
The central bank “seems to have decided it now has a more pressing problem,” Julian Evans-Pritchard of Capital Economics said in a report.
The slowdown adds to political headwinds for Xi, China’s most powerful leader since at least the 1980s. He still is widely expected to succeed, but some analysts say he might be forced to compromise by sharing more of his sweeping powers with other party leaders.
Despite downward pressure on growth, party leaders affirmed their commitment to the severe “zero-COVID” strategy in a July 29 statement. It dropped previous references to growth targets after the economy grew by just 2.5 per cent over a year earlier in the first half of 2022.
Growth in factory output in July slowed to 3.8 per cent over a year ago, down 0.1 percentage point from the previous month, according to the National Bureau of Statistics.
Growth in consumer spending fell to 2.7 per cent, down 0.4 percentage points from June.
Sales of housing and other commercial real estate fell 28.8 per cent from a year earlier.
Beijing is forcing developers to reduce debt levels, which caused economic growth to plunge in mid-2021, disrupting a recovery from the coronavirus pandemic. The crackdown has bankrupted smaller developers and fuelled fears of a default by the biggest, Evergrande Group, which owes USD310 billion to banks and bondholders.
