PBOC Pre-Announces More Easing Measures As Xi Pledges Lockdowns Will Continue Until COVID Defeated
According to our most recent count (coming courtesy of Nomura). about 373 million people in 45 cities (including Shanghai, China's the financial and economic heart of China's economy) are now under full or partial lockdown, comprising less than 20% of China's population but roughly 40% of China’s GDP.
And as Beijing scrambles to do everything in its power to protect the country's facturing economy - which is rapidly becoming (or rather, has already become) a serious problem not just for the CCP, but for the world, as IMA Asia's Richard Martin claimed during an early morning interview on CNBC's "Street Signs" on Tuesday - the central banking wunderkinds over at the PBOC are once again stepping into the breach.
#China should use RRR cut and other monetary policy tools at an appropriate time to increase financial support to the real economy, especially the sectors, small companies and individual businesses hit hard by the Covid-19 outbreaks, said Chinese Premier Li Keqiang said on Wed. https://t.co/3mGncoojIR— YUAN TALKS (@YuanTalks) April 13, 2022
In an announcement that seemed to imitate the Fed's favorite "bazooka" rhetoric (or, perhaps more like Mario Draghi's infamous "whatever it takes" moment), the PBOC said Wednesday that it was waiting and ready to (yet again) cut banks’ reserve requirement ratio and/or use other monetary policy easing measures "at proper time," according to a state television report sourced to a State Council meeting chaired by Premier Li Keqiang, China's most powerful political leader after only President Xi himself. Keqiang's announcement follows his latest warning about the direction of China's economy by about a day.
CHINA'S CABINET: WILL USE POLICY TOOLS, INCLUDING RESERVE REQUIREMENT CUTS IN A TIMELY WAY - STATE MEDIA
CHINA'S CABINET: WILL TAKE MEASURES TO BOOST CONSUMPTION- STATE MEDIA
CHINA STATE COUNCIL VOWS TO USE RRR CUT WHEN NEEDED: TV
As we have noted before (indeed, many times before), central banks are ill-equipped to fix structural problems in the economy spawned by the fact that millions of consumers are being kept from work (no matter how hard Beijing tries to "target" its "zero COVID" crackdown, they can't seem to reconcile the fact that essential workers at ports and factories can't be both under quarantine and together at work at the same time without seriously hampering productive capacity (although lord knows they have tried). In fact, Credit Suisse's Zoltan Pozsar has even touched upon this issue in some of his recent writings about the threat to the dollar's monetary dominance - if only tangentially.
Of course, easing isn't the only policy change that the CCP has been scrambling to make in this all-important year for President Xi, who is expected to be anointed to lead for a nigh-unprecedented (since Chairman Mao) third term as China's supreme leader during the upcoming quinquennial party congress in November.
The NYT noted earlier that as President Xi and the Politburo Standing Committee do everything in their power to kick-start economic growth, Xi's "common prosperity" crackdown on China's technology industry (along with private tutoring, video games and other alleged drivers of "inequality") has been postponed because of its anti-growth properties. As it turns out, cracking down on the industries that are the biggest drivers of your country's economic growth and prosperity can be bad for the all-important GDP numbers (goalseeked though they are).
To Beijing, ensuring the economy is stable and growing is paramount this year, an all too important one for Mr. Xi. As he prepares to claim a third five-year term later in the year, he has sought to portray China as more prosperous, powerful and stable under his rule. Officials have scrambled in recent months to try to reverse a slowdown in growth, made worse by surging global oil prices, uncertainty over the war in Ukraine and lockdowns in China to contain an unrelenting surge of coronavirus cases.
“Common prosperity is still here, but the growth situation is quite challenging,” said Huang Yiping, deputy dean of the influential National School of Development at Peking University, in an interview. “The top priority is really to stabilize growth.”
The delay is more of a tactical retreat than a wholesale abandonment of Mr. Xi’s plans, which the party continues to describe as a long-term goal. Mr. Xi’s “common prosperity” campaign is a pledge to shrink the country’s wide wealth gap and build up a middle class that can drive domestic consumption and reduce the country’s reliance on debt-fueled growth. It also serves political aims: to shore up public support for Mr. Xi’s leadership and champion the Chinese political system of centralized control as superior to the West.
Meanwhile, President Xi doubled-down on the lockdown policy Wednesday, telling state media that China will not relax its "dynamic" COVID lockdown policies until the COVID outbreak has been defeated (although the CCP will continue to do everything it can to minimize economic blowback).
Last month, western investment banks including Goldman Sachs declared Beijing's growth target to be "quite challenging" under current conditions. Since then, lockdown measures have only tightened, with the vampire squid projecting that the CCP could trim one percentage point off of growth for every four weeks of "targeted" lockdowns.
As far as stimulus is concerned, the floodgates have now been opened. Remember, the lockdowns are about more than just the economy now, they're about something bigger: the very legitimacy of the CCP's policymaking apparatus.