China has been hit by crisis after crisis in recent months, and an ambitious new plan has revealed just how dire the nation’s economic woes have become.
On Wednesday, Chinese media reported that the State Council had unveiled a new 19-point plan designed to stabilize the economy after it suffered repeated blows from the Covid pandemic and subsequent lockdowns and the nation’s ongoing housing crisis.
Adding to the growing problem is a record heat wave sweeping the country, which has led to the closure of dozens of factories in Sichuan in a desperate bid to protect energy supplies, a major blow given that the province is a major hub for lithium extraction, solar panels. manufacturing and semiconductors with a host of big-name companies, including Apple and Tesla, already affected.
Sichuan fertilizer producer Lutianhua has already forecast a US$4.4 million (A$6.3 million) reduction in net profit as a result of the shutdown, according to a notice on the Shenzhen Stock Exchange. , while the spokesman for the National Bureau of Statistics of China, Fu Linghui acknowledged at a press conference that the heat wave had already caused “adverse effects on economic operations.”
China’s desperate plan
Under the new plan, which was decided at the executive meeting of the State Council chaired by Premier Li Keqiang on August 24, a quota of more than 300 billion yuan (63 billion Australian dollars) was earmarked for ” policy-backed and development-oriented financial programs. instruments”.
Local governments have also been urged to use the quota of special purpose bonds worth more than 500 billion yuan (105 billion Australian dollars) by the end of October, while a series of construction projects will also be approved and launched. infrastructure.
In addition, “measures will be introduced to support the development and investment of private enterprises and promote the solid and sustained development of the platform economy”, and local governments will be able to implement city-specific policies, such as flexible credit loans to “meet the basic housing needs of people and the need to improve housing conditions”.
Payments of government charges will be suspended for a quarter and measures will also be taken to support electricity producers and agriculture.
The government said “swift and decisive action” would be taken “to further strengthen the foundations of economic recovery and growth, without resorting to massive stimulus or compromising long-term interests.”
“Given the current circumstances, we must seize the window of opportunity and maintain the appropriate political scale. Available funds must be used to the maximum. This will expand effective investment, boost consumption and help keep economic activities on a stable course,” Premier Li said.
“We should accelerate the delivery of political measures. The central government will provide the facilitation and the subnational authorities will be in charge of the implementation of policies”.
Thomas Westwater, an analyst at Daily FX and IG, said: “It looks like China is poised to offer more economic support.
“The Chinese government’s plan is a 19-point approach, including strengthening financing tools by 300 billion yuan. [$A63 billion]among other measures,” he said.
“That was reported by state media on Wednesday. China’s CSI-300 fell nearly 2 percent.
“The renewed commitment to provide support is encouraging, but China’s outlook remains clouded by sporadic Covid lockdowns and now, an energy crisis amid high mercury readings.”
It comes as Chinese homeowners continue to engage in unprecedented mortgage boycotts as the real estate industry falters.
China this month recorded its 12th consecutive month of plummeting property sales as cash-strapped developers scramble to complete projects.
The country’s economic growth was just 0.4 percent year-on-year in the second quarter, its slowest rate since the initial Covid outbreak.
So far, more than 20 major developers have defaulted on their debts in the past year alone, and S&P Global Ratings warns that about 20 percent of Chinese developers are at risk of becoming insolvent.
As a result of the escalation of the crisis, hundreds of thousands of citizens have banded together and refused to pay their mortgage loans on delayed housing projects, as it is common in China for mortgage payments to be made before they are due. complete the new properties.
These mortgage boycotts have been carried out in dozens of cities in an incredible show of defiance of President Xi Jinping’s strict Chinese Communist Party regime, which often responds harshly to any form of dissent.
Recent ANZ research estimated that boycotts could affect around 1.5 trillion yuan ($300 billion Australian) in home loans.
– with Ally Foster