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Beijing ordered state-owned policy banks to set up an 800 billion yuan ($120 billion) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by coronavirus lockdowns.
The announcement, made at a State Council meeting chaired by Premier Li Keqiang, could help finance a significant chunk of infrastructure costs this year. Bloomberg Economics estimated China’s infrastructure spending came to 23 trillion yuan in 2021. Large policy lenders include China Development Bank.
Beijing’s calls for faster implementation of growth-boosting policies have intensified since official data showed that economic activity contracted in April and unemployment rose sharply. High-frequency indicators suggest the decline continued in May, leading Li to warn last week of risks from a possible year-on-year contraction in the second quarter.
China has aimed most financial support this year at corporations rather than households. At Wednesday’s meeting, the State Council reiterated vows to back internet platforms seeking domestic and overseas public listings. The top government body also said targeted support measures should be provided for people who have lost jobs or income, including raising pensions and distributing subsidies to some migrant workers.
China’s coronavirus cases have moderated in recent weeks, leading to an easing of the lockdown in Shanghai. Still, the government’s strict Covid-Zero policy, which requires restrictions on activity wherever outbreaks occur, means that consumption is likely to remain muted. Authorities are trying to rely on infrastructure investment to boost growth while remaining reluctant to stimulate the real-estate sector, which is in a deep contraction.
“The economy should also be supported by the increased stimulus, but to what extent it feeds into higher GDP growth will depend on how China manages future Covid outbreaks,” Allan von Mehren, China economist at Danske Bank A/S, wrote in a note. “The Shanghai lockdown has been an outlier so far, but as a minimum we should expect more outbreaks requiring some level of restrictions.”