Ciara Morris | China Fellow
The world’s second largest economy is in a state of emergency. Only a few months after the announcement of an ambitious 5.5 per cent economic growth target, a national teleconference of senior economic policymakers told a very different story for the Chinese economy.
In April this year, 26 million people in Shanghai – a financial hub and China’s most populous city – entered one of the world’s toughest COVID-19 lockdowns. The Shanghai Stock Exchange Composite Index saw the market fall a dramatic 17.5 per cent between January and early May. The national unemployment rate soared to 6.1 per cent. Retail sales fell 11.1 per cent compared to April 2021. A nearly 8 per cent decline in industrial production reversed an upward trend of 5 per cent in March and signalled the worst slowdown in industrial productivity in China since February 2020.
These numbers have warranted a dramatic macroeconomic policy adjustment. At the emergency teleconference on the 25th of May, Premier Li Keqiang addressed the heads of the People’s Bank of China, officials from the Ministry of Finance and the National Development Reform Commission (China’s primary macroeconomic management agency), as well as over 100,000 cadres.
The meeting was held under the banner of the State Council, chaired by Premier Li, with President Xi Jinping notably missing. For such a large assembly of important economic figures, this meeting received very little official media coverage. The Communist Party likely issued instructions to avoid giving the teleconference, and therefore the problem, high-profile coverage. Economic growth and development in the People’s Republic of China (PRC) still underpin the legitimacy of the Party’s popular support, and, therefore, a lot rests on overcoming these challenges.
In his address, Premier Li admitted that current economic disruptions are possibly even greater than those experienced in early 2020. He acknowledged that the 5.5 per cent growth target is unattainable and urgently, challenged officials to keep the economy from contracting further.
Although acknowledging the role for pandemic control measures in ensuring ongoing growth, Premier Li stopped short of admitting how the PRC’s zero COVID-19 policy assisted in causing the current economic downturn.
The PRC’s zero COVID-19 policy has led to an outcry from foreign citizens, business owners and investors. A recent survey by the American Chamber of Commerce in China found that over 50 per cent of US businesses have delayed or reduced their investments because of recent outbreaks. However, Beijing is unlikely to abandon the policy or crackdowns on the private sector in its effort to exert greater control over the economy.
Premier Li commanded cadres to get to work on the State Council’s newly announced economic support package, which lays out 33 new initiatives across six policy areas addressing the economic crisis. To avoid repeating the historical mistakes of the Great Leap Forward (where economic figures were routinely inflated at the local level) the State Council will conduct accountability inspections on local governments' execution of policy measures.
The State Council will increase infrastructure spending and enhance fiscal support through reductions to companies’ social security contributions, accelerated tax rebates, as well as providing subsidies for small and medium-sized enterprises. The support will particularly be extended to airlines and the broader travel sector. Although it’s not clear if this sort of economic policy mix will work, generous government stimulus is a reason to be optimistic.
It’s worth remembering the strong position of the Chinese economy at the end of 2021 following a growth period of 8.1 per cent, which exceeded international expectations. David Thomas, an Australian CEO with over 30 years of business experience in China, says friends and business partners have taught him to “never under-estimate China”.
It may not be cause for global panic, but China’s experience does reflect a sombre lesson. The severe disruption caused by COVID-19 more than two years after the initial outbreak can still wreak havoc on even the world’s largest economies. No country should take an escape from lockdown for granted.
Ciara Morris is the China Fellow for Young Australians in International Affairs.