The new measures announced by China’s cabinet on Wednesday amount to more than 1 trillion yuan ($146 billion) in funding to improve infrastructure, ease power shortages, and tackle drought, including money to secure rice production.
“The current economic recovery has a weak foundation,” the statement said, adding that the new funding was aimed at stabilizing the economy. Premier Li Keqiang hosted the cabinet meeting.
Several major investment banks, including Goldman Sachs and Nomura, downgraded China’s economic growth forecasts for 2022 to 3% or under, as the heatwave hit industrial heartlands. This is way below 5.5% growth target that the Chinese government had set earlier this year.
China’s biggest focus remains infrastructure growth.
With the central bank’s support, state development banks can lend out $44 billion to finance infrastructure projects, the statement said. That’s on top of $161 billion already committed in June.
Local governments will also be permitted to issue $73 billion in debt to fund the building of roads, railways, airports, affordable housing and energy projects. That’s in addition to 3.5 trillion yuan ($511 billion) of bonds they were given permission to issue for the same purposes earlier this year.
“Priority should be given to ensuring people’s drinking water, and to transport and deliver the water when necessary,” Li added.
The central government will also take 10 billion yuan ($1.5 billion) out of its reserve fund for drought relief, focusing on securing rice production during the key mid-season harvest for rice in the southern region.
“[We should] do everything possible to ensure agricultural irrigation water and help farmers fight the drought and protect their autumn crops,” Li said.
The government will support research into measures to promote a “bumper harvest” for late-season rice in the fall, he added.
Analysts weren’t optimistic about the impact of the new economic stimulus on the economy.
“These measures could help offset the sharp contraction in government revenue and support infrastructure investment growth to some degree in coming months,” said Goldman Sachs analysts in a note late Wednesday.
But they still expect overall growth to remain sluggish during the rest of this year, “barring major policy easing measures,” as a “very weak” property sector and headwinds from Covid lockdowns will continue to drag on the economy.
Trouble in the property sector — which accounts for as much as 30% of China’s GDP and was already suffering from a prolonged cash crunch — is exerting significant pressure.
Nomura analysts said the new stimulus measures wouldn’t be a “game changer.”
“The zero Covid policy continues consuming a large amount of local governments’ fiscal resources,” they said, adding that he property sector is “still in deep trouble.”