China’s prime minister said the world’s second-largest economy may struggle to post positive growth this quarter, and urged authorities to help companies resume production after Covid-19 lockdowns.
Li Keqiang’s comments, made to tens of thousands of officials in an internal video on Wednesday, underscore the difficulties President Xi Jinping’s government will face in achieving its 5.5% annual growth target as at the same time it fights the outbreaks of omicron.
The last time China’s growth went into negative territory was when production dropped 6.9% year-on-year in the first quarter of 2020, after the coronavirus pandemic ended an era of uninterrupted growth that began more than 30 years ago.
Xi’s controversial “Covid zero” policy has brought business activity to a halt in Shanghai, China’s largest city, as well as parts of Beijing and dozens of smaller municipalities. Millions of people in Shanghai have been confined to their homes for two months or more.
“We will try to make sure the economy grows in the second quarter,” Li said, according to a transcript the Financial Times verified with three people briefed on the prime minister’s comments. “This is not a high target and it is a long way from our target of 5.5%. But we have to do it this way.”
In the first quarter of this year, China recorded annual GDP growth of 4.8%.
Li added that the economy is “to some extent worse than” at the start of the pandemic in early 2020, noting that the unemployment of 16-24 year olds has reached an all-time high of 18.2%, while the unemployment rate of migrant workers also rose sharply.
A condensed version of the prime minister’s comments, including his call to achieve “reasonable growth”, was aired on the main evening news on Chinese state television.
Li called on officials present, including Vice Premiers Liu He and Han Zheng and Central Bank Governor Yi Gang, to help companies resume production.
“Progress is not satisfactory,” said the prime minister. “Some provinces are reporting that only 30% of businesses have reopened. The proportion should be increased to 80% within a short period of time.”
Li added that business liquidation increased by more than 23% year-on-year in April as the entire city of Shanghai entered a total lockdown that affected business operations in eastern China. For the most part, small and medium-sized private sector companies, which account for half or more of government revenue, economic output and employment, have been hardest hit.
According to the transcript, Li did not mention Xi’s Covid zero strategy, but reiterated the importance of prevention. “We must ensure that the smooth functioning of supply chains and the prevention of Covid are achieved,” he said, adding that “many SMEs and local authorities have told me that their worst days have arrived.”
The Bureau of National Statistics reported last week that retail sales were down 11% year-over-year last month. Another growth engine, industrial production, declined by 3% over the same period — its first decline since the start of the pandemic in early 2020.
According to Li, power generation, freight transport and new bank loans all fell in the first half of May.
On May 20, China’s central bank cut its five-year prime lending rate, used to price mortgages, from 4.6% to 4.45%. China’s real estate sector, which accounts for about 30% of total economic output, was suffering even before this spring’s outbreaks and lockdowns in Shanghai, Beijing and other cities.
Jilin, a large agricultural region in northeast China, was one of the worst-affected provinces. Li said grain production “can barely” meet demand and warned of “enormous problems” if the summer grain harvest is poor.
Li also said that several provinces have asked the government for financial help, but hinted that Beijing’s resources are limited. “I’m here to let you know my final point,” Li said. “There is a reserve fund managed by the prime minister. Other than that, local governments must raise funds [por conta própria].”
He did not specify the background size.
Translated by Luiz Roberto M. Gonçalves
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