China’s central bank takes action as record Covid-19 outbreak hits economy

SINGAPORE — China’s central bank has struggled to halt growth by boosting lending to households and businesses as the world’s second-largest economy grapples with its biggest Covid-19 outbreak since the pandemic began.

Economists said the policy change is likely to have a limited impact as repeated lockdowns, an ongoing housing shortage and slacking demand for Chinese exports mean appetite for credit is weak.

Still, the move – cabled earlier this week by China’s State Council, which acts as its cabinet – underscores the darkening prospects for growth as authorities tighten restrictions across the country to stamp out record infections.

The People’s Bank of China said on Friday it would cut banks’ reserve requirement ratio by 0.25 percentage points, lowering the amount of reserves banks must hold against their deposits. The move should free up around 500 billion yuan, or about $70 billion, for banks to use for new loans.

The cut, which will bring the average reserve requirement ratio across all banks to 7.8%, comes into effect on December 5, the central bank said. The PBOC last lowered the ratio in April when its economy faced similar pressure during a two-month lockdown in Shanghai, China’s financial and trade hub.

Supermarkets remain open in Beijing, but many shops and restaurants have shut down.


Photo:

Ng Han Guan/Associated Press

Beijing’s fight to contain the virus’ recent outbreak is sending a strong signal that the country and its leaders are not ready for a sustainable reopening, long after other major economies have dismantled almost all Covid controls.

Chinese leader Xi Jinping’s success in securing a third term in power at a Communist Party meeting this fall had sparked expectations among some investors that a more rapid departure from Beijing’s zero-tolerance approach might be imminent.

In November, the government released a 20-point plan to refine some virus controls, such as Such as shortening quarantine periods and easing restrictions on close contacts of confirmed cases, raising hopes of a reopening of China’s economy.

But recent outbreaks have dashed hopes of a less stringent and more growth-friendly approach to containment, at least for now.

China reported nearly 32,000 new locally transmitted cases on Thursday, a new daily high. More than 60% were found in the southern manufacturing hub of Guangdong, the central metropolis of Chongqing, Beijing and the surrounding province of Hebei, data from China’s National Health Commission showed.

China’s recent Covid outbreaks have dashed hopes of a less stringent approach to containment. Covid tests were carried out in a sealed-off residential area in Beijing on Friday.


Photo:

noel celis/Agence France-Presse/Getty Images

In the capital, where cases have soared to over 1,800 in recent days, Covid control measures have become as stringent as they were in April and May, when many shops were closed and freedom of movement severely restricted in response to a wave of infections.

On Friday, some streets in central Beijing that are normally packed with traffic were empty. The city has asked many residents to stay home while many schools and businesses closed this week. Many buildings and apartment complexes were locked down after cases were found, with workers in hazmat suits guarding these entrances.

While many shops and restaurants have shut down, supermarkets remain open and officials have said supermarkets should remain open to support people’s livelihoods. For some delivery apps, grocery delivery services became unavailable due to labor shortages.

In the southern metropolis of Guangzhou, the local government said on Friday that the rapid rise in local outbreaks is gradually coming under control as the number of new cases slowly falls. Public transport in a closed district is due to start operating again from Monday, the city government said.

Economists at Goldman Sachs said in a report on Friday that they estimate counties, which account for around 65% of China’s annual gross domestic product, are classified by the government as medium- to high-risk areas and face strict restrictions on trade and daily life.

Deteriorating business survey results and falling exports signaled slowing growth ahead of the latest round of restrictions. China’s economy is also struggling with a real estate sector burdened with high debt, uncompleted projects and falling sales, and is facing fresh headwinds from a US decision to ban the export of advanced semiconductor chips and technology to China.

Previous lockdowns have closed restaurants, hammered domestic tourism and squeezed factory production through the gum-pumping of road transport. China’s economy grew just 0.4% year-on-year in the second quarter, the peak of the previous outbreak.

Xiao Xiao and Yoko Kubota in Beijing contributed to this article.

Write to Jason Douglas at [email protected] and to Raffaele Huang at [email protected]

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