China Unveils Package to Boost Economy Amid IMF Growth Warning

Labyrinthine Covid Reminder System Is The Real Reason For The Delays

China’s politburo has announced measures to revive the faltering economy as the crisis in the country’s debt-laden real estate sector continues to disrupt growth forecasts.

Amid a warning from the International Monetary Fund (IMF) that a slowdown in the world’s second-largest economy could hurt global recovery after Covid-19, President Xi Jinping’s executive committee on Monday approved a central bank plan for more targeted business loans. They also highlighted support for the housing market.

The People’s Bank of China (PBOC) has announced that it will reduce the reserves most banks are required to hold by 0.5 percentage point, freeing up an additional 1.2 billion yuan ($ 188 billion) into the economy, the central bank said in a statement.

The leaders also agreed to “promote the construction of affordable housing, support the commercial housing market and better meet the reasonable housing needs of buyers,” state news agency Xinhua said.

The Chinese economy is not growing as quickly as expected as it faces headwinds from a troubled global economy, continued Covid epidemics and the housing market slowdown – once a key driver of growth but which is now experiencing a series of defaults.

In October, the IMF lowered its growth forecast for China to 5.6% in 2022, which is huge by developed country standards but modest by recent Chinese standards.

IMF Managing Director Kristalina Georgieva said on Monday that China had a major role to play in the global economy as it recovered from Covid-19, but that its growth was slowing.

“China has achieved a truly remarkable recovery, but its growth momentum has slowed down considerably. With China being a vital engine of global growth, taking decisive action to support high-quality growth will not only help China, but the world, ”Georgieva said.

UBS analysts said Monday’s policy announcements were a “clear signal” of monetary easing, but others were less certain and noted that the PBOC insisted monetary policy will remain cautious.

Julian Evans-Pritchard, Chinese economist at Capital Economics, said the move was “opening the fiscal taps, not a flood”, and that “this easing will cushion but not stop growth from slowing”.

However, he predicted that the PBOC would have to cut its main interest rate before long. “As economic activity continues to weaken and the PBOC becomes more serious in reducing the costs of financing businesses, we believe it will need to take further action, including key rate cuts. “

Participants at Monday’s meeting chaired by Xi said the housing moves “would promote healthy development and a virtuous cycle of the real estate industry,” according to Xinhua.

But the backdrop for the comments was less clear, and the risks facing the Chinese economy were underscored by another eventful day for real estate developers on Monday.

Shares of China Evergrande, the country’s second-largest developer, fell 20% on Monday after a weekend statement from the company said it may not be able to repay some of its debts. $ 300 billion.

Markets were on the verge of whether he would raise enough money to repay an $ 82.5 million bond by midnight New York time Monday. Failure to do so would trigger potentially serious default and cross-defaults across the Chinese economy. Evergrande shares rose 7% at the start of trading on Tuesday in Hong Kong.

Even with Evergrande making an eleventh hour repayment, for the fourth time since October, most analysts expect the sprawling group will need to undergo a major restructuring to spread its debt across the economy.

The announcement came after another Chinese developer, Sunshine 100 China Holdings, said on Sunday it missed a deadline to repay $ 179 million in principal and interest on a 10.5% bond.

Bill Bishop, a respected expert on China and author of the Sinocism newsletter, said Xinhua’s reports on the Politburo meeting had received “a lot of attention,” but he didn’t think he was. was a significant easing.

“I don’t think this is a fundamental change,” he wrote in his last newsletter. “Policymakers face significant issues in real estate markets including – but far from limited to – Evergrande, and they don’t want to wreck the industry. Can they calibrate and avoid disaster? We will find out. “


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