China: Beijing wants to get the economy going again after Covid lockdowns with a program worth billions

Created: 08/25/2022, 09:56

By: Lisa Mayerhofer

China's economy is suffering from the consequences of the "zero corona policy".

Billions in aid should get the economy going again - especially in the energy supply.

Beijing – China has announced further billions in aid to stabilize the ailing economy.

As the Chinese State Council announced after a meeting on Wednesday, more than 300 billion yuan (about 44 billion euros) in additional funds are to be made available for infrastructure expansion.

China: Billions in aid for energy supply after power shortages

The expansion of investment should help "keep economic activities on a steady course," said China's Premier Li Keqiang, who chaired the meeting.

Financial aid for state electricity producers was also announced.

Special bonds worth 200 billion yuan (about 29 billion euros) are to be used to support the energy supply.

Due to the persistent heat, there had recently been power shortages in parts of China.

The Chinese economy is suffering because Beijing is not moving away from its “zero corona policy”.

The aim of this is to nip any outbreak in the bud.

Numerous megacities had imposed strict measures, especially in spring, to prevent the spread of the highly contagious omicron variant.

In addition, problems in the real estate market are also weighing on growth in China.

China's central bank lowers key interest rates

The Chinese central bank is also trying to strengthen the economy again – with interest rate cuts.

The People's Bank of China cut its key interest rate (loan prime rate) on one-year loans by 0.05 percentage points to 3.65 percent, according to a statement Monday.

The five-year rate, which is important for real estate loans, fell by 0.15 percentage points to 4.3 percent and thus more significantly than economists had expected on average, while the one-year rate was not reduced quite as significantly as expected.

In order to support the economy, China's central bank surprisingly reduced the interest rate for one-year refinancing transactions with banks a week ago for the first time since January.

With the easing of monetary policy, the Chinese central bank stands out internationally.

The central banks of many other countries are trying to get their high inflation under control by raising interest rates.

In China, however, inflation is quite low.

In view of the contrasting development, the scope for Chinese monetary policy is likely to be somewhat limited, according to experts.

The interest rate hikes, particularly in the USA and the euro zone, raised concerns that capital could flow out of China and thus weaken the Chinese currency, the yuan.

The possibilities of the Chinese central bank are also limited by the considerable debt of many public companies and the provincial governments.