China cuts interest rates to prop up faltering economy
BEIJING — China’s central bank lowered its key interest rate on Monday to support sluggish economic growth at a politically sensitive time when President Xi Jinping is reportedly trying to extend his grip on power.
The ruling Communist Party effectively acknowledged last month that it could not meet this year’s official growth target of 5.5% after anti-virus measures disrupted trade, manufacturing and government spending. consumption. A crackdown on corporate debt has plunged activity in the broad real estate sector.
The People’s Bank of China cut its rate on a one-year loan to 2.75% from 2.85% and pumped another 400 billion yuan ($60 billion) into lending markets after data from the government showed factory output and July retail sales weakened.
The decision suggests that Beijing is temporarily shelving its debt concerns and trying to avoid a politically sensitive crisis before a ruling party meeting in October or November, when Xi is expected to try to break with tradition and grant himself a third five-year term as Chief.
The central bank “appears to have decided it now has a more pressing problem,” Julian Evans-Pritchard of Capital Economics said in a report.
The slowdown adds to political headwinds for Xi, China’s most powerful leader since at least the 1980s, although he is still expected to succeed. Some analysts suggest he may be forced to compromise by sharing more of his vast powers with other party leaders.
Despite the downward pressure on growth, party leaders affirmed their commitment to the tough “zero-COVID” strategy in a July 29 statement. He dropped previous references to growth targets after the economy grew just 2.5% from a year earlier in the first half of 2022.
Official data on Monday showed factory output fell 0.1% in July from the previous month. Retail sales fell 0.4% from June.
The latest rate cut and the extra money for loans are small compared to China’s $17 trillion-a-year economy, the world’s second-largest. Instead, these changes are widely seen as a signal to the public banking sector to lend more and lower fees for commercial borrowers.
The ruling party is struggling to revive activity after Shanghai, the country’s commercial capital, and other industrial hubs were shuttered for weeks from late March to fight virus outbreaks.
Officials at the world’s busiest port in Shanghai say shipping has returned to normal, but economists say it could be months before the flow of smartphones, home appliances, consumer electronics and other goods via complex supply lines will not fully recover.
A survey of manufacturers released earlier showed activity in July contracted. Indicators for new orders, exports and employment declined.
Retail sales fell 0.7% from a year earlier in the first half after plunging 11% in April following the temporary shutdown of Shanghai and other cities.