Premier Li Keqiang on Wednesday issued a dire warning about the dangerous state of China’s economy, telling more than 100,000 officials in a nationwide video conference call that they urgently need to boost growth, reduce unemployment and secure summer grain harvests.
However, the lack of concrete new initiatives from the central government and muted state media coverage of the event suggest that there is still no easy way out of the economic crisis sparked by President Xi Jinping’s controversial zero-Covid policy. The strategy has completely or nearly halted commercial activity in dozens of cities over the past three months.
Just a few hours after Li spoke, Chinese state television’s prime evening news program buried a brief and heavily watered-down version of his remarks in the middle of its bulletin. Instead, it began with a lengthy article about Chinese police officers – who pride themselves on being “the Chinese Communist Party’s knife-wielders” – showering Xi with praise.
The footage showed more than 1,400 uniformed officers applauding Xi, sending a clear message to cadres across the country that mounting concerns about the world’s second-biggest economy would not oust the fight against the pandemic as a party priority.
“After watching the news, it feels pretty hopeless,” said a government official in eastern Jiangsu province, who is trying to revive the local economy. “There was a lot more coverage of how everyone was applauding [Xi].”
Li and Yi Gang, the central bank governor, added to local officials’ uneasiness when they suggested the government was relatively unwilling or able to help them, despite the economic challenges “being in” according to the premier to some extent larger than in 2020” when the Covid pandemic broke out in the central province of Hubei.
In the first quarter of 2020, China’s economy shrank 6.9 percent year-on-year, the first officially recognized annual contraction in more than 40 years.
Li even raised the specter of possible food shortages. While international attention has largely focused on Shanghai’s tough measures, which began in late March and were only gradually eased over the past week, lockdowns and regional transport restrictions have also hit large agricultural regions such as Jilin province.
“The harvest absolutely cannot stop,” he told officials, according to confidential minutes of Wednesday’s emergency meeting, confirmed by three people briefed on the PM’s comments. “[Food security] is a fundamental responsibility of the local party [cadres] and governments. When you can’t stabilize yourself [agricultural] production, you will be held accountable.”
However, Li and Yi offered only a modest expansion of a corporate tax break initiative and Rmb800 billion (US$118.7 billion) in new policy loans, just 0.7 percent of gross domestic product.
During the low point of the global financial crisis in 2008 and 2009, Beijing unleashed an economic revival amounting to 13 percent of annual economic output.
“Recently, some provinces submitted reports to the State Council [China’s cabinet] ask to borrow money,” Li said. “[But current] Transfer payments to local governments are the largest in history. . . So let me give you the bottom line, the rest is up to your local governments.”
Analysts argue that in areas where strict lockdowns have sapped business and consumer demand, more bank lending is about as effective as, using the analogy attributed to John Maynard Keynes, “pulling on a piece of string.”
“Without central government intervention, the upside potential for fiscal support is limited,” said Trey McArver of Trivium, a Beijing-based consulting firm. “A V-shaped recovery is extremely unlikely.”
David Zhang, who owns a small market research firm in Beijing, said that “cheap loans for SMEs won’t help – my problem is a lack of business and rising operating costs”.
Zhang, whose earnings have fallen more than 50 percent in recent months, added that “the situation is worse than in 2020.”
Many small business owners also complain that Li’s tax refunds often come with strings attached that make them unfeasible for struggling small and medium-sized businesses.
In some regions, cash-strapped local tax authorities grant tax breaks to only one party in each transaction, which are typically claimed by larger state-owned companies and foreign investors at the expense of their smaller and mostly private-sector SME suppliers.
“Most of our clients are bigger than us and there is no way they will give up tax benefits to help us,” said Li Bin, who runs a small advertising company in Nanjing, near Shanghai. “We are too small to let our customers sacrifice for us.
“Business is very bad.”