CNN business in Hong Kong –
China has unveiled 19 new measures to boost its economy and supply it with “safe drinking water” as the country grapples with its worst heatwave in 60 years and a tough Covid lockdown.
New measures announced by China’s cabinet on Wednesday include more than 1 trillion yuan ($146 billion) in funding to improve infrastructure, alleviate electricity shortages and combat the drought that has impacted rice production. The money for security is also included.
“The foundations of the current economic recovery are weak,” the statement said, adding that the new funding was aimed at stabilizing the economy. Premier Li Keqiang hosted the cabinet meeting.
Beijing has tried more than once this year to boost investment and consumption in the world’s second largest economy. In May, the government announced 33 measures to revive growth.
Despite these interventions, the Chinese economy has been battered by the COVID lockdown and asset collapse in recent months. Analysts are also concerned about the impact China’s record-breaking heat and drought will have on growth. Several international companies including Tesla (TSLA) and Toyota (TM) have already faced disruption at factories due to power outages.
Major investment banks downgrade China’s economic growth, including Goldman Sachs and Nomura Forecast for 2022 to 3% or less due to heat wave Open industrial hearts. That’s well below the 5.5% growth target set by the Chinese government earlier in the year.
China’s biggest focus is on infrastructure development.
With the support of the Central Bank State development banks could provide loans of up to $44 billion to fund infrastructure projects, the statement said. This is on top of the $161 billion already raised in June.
Local governments are also allowed to unblock $73 billion in loans to build roads, railroads, airports, affordable housing and energy projects. This is on top of the 3.5 trillion yuan ($511 billion) in bonds they were allowed to issue for similar causes earlier this year.
Lee also urged all government agencies to “do better” to combat the drought and mitigate its effects. He called for more wells to be drilled and more drought-resistant water sources to be developed, alongside cloud seeding, which China resorted to earlier this month to bring more rain to the Yangtze.
“Priority should be to ensure people’s drinking water and transportation and distribution of water when necessary,” Li said.
The central government will also take 10 billion yuan ($1.5 billion) from its reserves to provide drought relief, with a focus on securing rice production during the southern region’s key rice shoulder season.
,[We should] Do everything you can to ensure the farm’s irrigation water and help farmers fight drought and protect their fall crops,” Lee said.
He said the government will support research into measures to encourage “auto-harvest” for late autumn rice.
Analysts were not optimistic about the impact of the new stimulus on the economy.
“These measures could help offset the sharp fall in government revenues and provide some support to infrastructure investment growth in the coming months,” analysts at Goldman Sachs said in a note late Wednesday.
However, they expect headline growth to remain sluggish for the remainder of this year “barring major policy easing” as a “very weak” asset sector and headwinds from the COVID lockdown will continue to weigh on the economy.
Trouble in the real estate sector – which accounts for up to 30% of China’s GDP and has already suffered from an ongoing liquidity crisis – adds significant pressure.
The crisis has escalated since developer Evergrande defaulted on its debt last year. Real estate prices are falling, as are new home sales. Angry homebuyers across the country have threatened to default on their mortgages on unfinished homes, shaking markets and prompting companies and government agencies to take action to contain the crisis.,
Analysts at Nomura said the new stimulus measures would not be a “game changer”.
“The zero-Covid policy continues to consume a significant chunk of local government financial resources,” he said, adding that the real estate sector “is still in deep trouble.”