China is resorting to infrastructure spending to maintain economic strength, raising international suspicions

The Asian giant It has deviated from its economic policies and seems to have entered a trajectory that runs counter to industrial states. As the United States and Europe begin to pull out, or at least reduce, monetary stimulus, China is trying to drive its strategy with incentives and subsidies. The fight against inflation, which is also destroying the world’s second largest economy, seems to have been diminished in favor of stimulus measures.

This approach should raise suspicions that GDP grew by 4.8% in the first quarter. But instead of restraining prices, the commitment to dynamism remains in place, despite the fact that both the multifaceted culinary book – at the head of the IMF – and the political and monetary authorities are increasingly convinced that price increases are no longer temporary. The quarterly meeting of the Politburo – the highest decision-making body of the Communist Party – focused last week on the structural reforms that China needs to strengthen its economy. This urgency of the recipes, in the midst of a regular meeting of the country’s leaders, has been interpreted as a clear sign of doubts about the strength of China’s GDP.

Few in the market believe that the Chinese economy was able to recover by 4.8% in the wake of the post-war losses in Ukraine and in severely restricted cities such as Shenzhen or Shanghai, the epicenters of technological and financial power. Accordingly. Virtually all international investment banking research services question first-quarter data, while their forecasts fall short of the undeclared growth target of 5.5% year-over-year. For the first time in the five-year plan – now in force, launched by President Xi Jinping in early 2021 – any appeal to the specific goal of economic dynamism has been scrapped.

Most of the forecasts are for China’s GDP growth of around 4.5%. Nomura Training Service intends to place it at 3.9%, four-tenths of a percent below its latest estimate, given that a “strict zero-covid strategy will be strengthened,” leading to a “supply collapse,” meaning it has moved “into the economy as a whole.” Lu, chief economist at the Japanese Investment Bank in China. This re-issue of the health crisis “will weaken demand for homes and long-term and capital goods due to declining incomes and rising uncertainty,” he added, confirming his predictions.

For example, at UBS, which points to a 4.2% increase, even though the X-ray of the situation is one of the most disturbing to its annual outlook, it is emphasized that “the downward pressure on the economy has led to. Has become stronger. ” This is what the team of economist Wang Tao warns, which “does not expect” from the government “what they must do to reach the unofficial target of 5.5%.” Essentially, because it means stoning the Covid Zero policies that they have so persistently introduced into their population. “This will continue to be his priority,” he explained. Shanghai continues to cause more than 150 deaths from the pandemic every day.

With the pandemic, return on value chain disruptions, port traffic jams on its shores and commercial and logistical delays will return, according to Ellen Kiao of Bank of America, which sees growth of 4.8% this year.

However, the nominee does not rule out a contraction in the current quarter, a period in which double tensions will shift: first, due to the war in Ukraine and second, due to the closure of Shanghai, which will continue. Anyway, another month, predicts François Huang, an analyst at Allianz Trade. According to a reading by JP Morgan, which identifies a deeper slowdown in activity in April than last month because, according to their national reports, they acknowledge that 25% of their productive structure is completely or partially paralyzed. Earlier this month.

The transition between the quarters has left its mark on changes in the “urgency” of “stabilizing” monetary and economic policy activity, explains a Nomura analyst. The People’s Bank of China (PBoC) has decided to reduce the required reserves from banks to facilitate lending. This amount of money is the basis of adaptive management, in which it also plays a defining role – Wait and see [esperar y ver]- To keep interest rates unchanged from January and state credit institutions continue to offer private financing for the purchase of beauty items or technological equipment, along with other personal requirements.

The monetary authority itself explains its maneuvers: they intend to “confirm and extend the stimulus to balance external and internal demand” at the stage of gradual increase in the value of money by the US Federal Reserve and without specific specifications. Caliber or planned increase in number this year. This is not a trivial matter, given that capital flight has taken place in China since the start of the Ukraine war, he argues. Economist In the last report.

Based on this situation, Beijing chooses Keynes’s recipe book. Under the leadership of Xi, an ambitious infrastructure plan will be put in place. Chinese President announces massive bureau projects to build or modernize transport networks or infrastructure UtilityEssentially water and energy.

In a speech to the Central Committee on Economic and Financial Affairs, the Chinese president cited spending policy as a “pillar of social and economic development” and added digitalisation and sustainable development as priorities in the current five-year plan. Theoretically, the new economic plan should lead China to global economic and business hegemony, the head of state said in announcing the five-year strategy for 2021-2025. It also aims to boost domestic demand – for household consumption and corporate investment – in the direction Beijing wants to use the country’s economic dynamism as a guarantor of national security.

“China needs consistent reforms,” ​​Tim Moem told Goldman Sachs Bloomberg TelevisionAnd that “they are adapting to Covid’s de-escalation and the investment needs of their companies, because if the hermetic closure of cities continues, there will be no point in spending on infrastructure.” The fiscal funds that Xi is asking for “must be channeled in the long run if it is to combine capital investment with construction needs” of communication or energy networks and channels. In addition, the Asian giant already has an arsenal of expansion plans – 14.8 billion yuan ($ 2.3 billion) – by the local government, which is twice as much as the infrastructure program approved by the US Congress.

Goldman Sachs estimates that the slogan of the Chinese president will allocate another $ 600,000 million, without forgetting another stellar event of Prime Minister Li Keqiang: tax cuts. In March, his cabinet announced another $ 393.3 billion cut for this year, the fifth in a row to reduce fiscal pressure. Keqiang’s argument: “Fertilizer must be applied directly to the root.”

Fuel to stimulate the economy – but counterproductive to curbing inflation, as the IMF recently advised at its Spring Summit – The tax sector has raised doubts among domestic and foreign economists about growing and slowing the deficit, which means few less. Cash registers that help to reduce the huge inequality in the country. Tax collection in China accounted for 21% of its GDP in 2021, well below the average of 34% of OECD partners.

Chinue Dong, a BBVA economist in China, said the volatile climate “erases the official history of soft monetary promotion.” While Tommy Wu, an analyst at Oxford Economics, argues that Beijing should support the activity if it does not want to witness a “sharp drop” due to heavy logistics and limited customer mobility. This is an aspect that should be of concern to “many” in the rest of the world, says Sarah Johnson of S&P Global Market Intelligence, as “reorganizing value chains and trading in China is essential to preventing another global recession.”

Source: El Diario





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