China cuts interest rates to support struggling economy

BEIJING (AP) — China’s central bank cut key interest rates on Monday to support slowing economic growth at a politically sensitive time as President Xi Jinping seeks to extend his grip on power.

The decision will allow Beijing to put its high debt concerns on hold to act to stem the downturn before President Xi Jinping seeks to give him a third five-year term as Communist Party leader at this fall’s meeting. It suggests that the

The ruling party has effectively admitted it will miss the official 5.5% growth target this year after virus curbs have disrupted trade, manufacturing and consumer spending.Overborrowing in China’s sprawling property industry crackdown has caused home sales and construction to plummet.

“The momentum of the economic recovery is slowing. More efforts are needed to lay the groundwork for the economic recovery,” government spokesman Fu Linghui said at a press conference.

The People’s Bank of China cut interest rates on 1-year loans to 2.75% from 2.85%, slowing growth in factory output and retail sales in Jul and double-digit home sales.

The central bank “appears to have decided there is a more pressing problem,” Julian Evans-Pritchard of Capital Economics said in a note.

The slowdown is fueling political headwinds for Xi Jinping, China’s most powerful leader since at least the 1980s. He is still widely expected to succeed, but some analysts say sharing his vast powers with other party leaders may force him to compromise.

Despite downward pressure on growth, the party leader confirmed its commitment to a stringent “zero COVID” strategy in a July 29 statement, following economic growth of only 2.5% year-on-year in the first half of 2022. , withdrew previous references to growth targets.

Factory output growth slowed to 3.8% y/y in July, down 0.1 percentage points from the previous month, according to the National Bureau of Statistics. Private consumption growth slowed to 2.7%, down 0.4 percentage points from June.

Residential and other commercial real estate sales decreased 28.8% from the prior year period.

Economic growth plunges in mid-2021, hampering recovery from the coronavirus pandemic as Beijing pushes developers to cut debt levels. The crackdown has forced smaller developers into bankruptcy and fueled fears of default by his Evergrande Group, the largest ower of his $310 billion to banks and bondholders.

A “downtrend” in real estate “has a huge impact on economic growth,” said Hu, a government spokesman.

Rate cuts and additional lending are small compared to China’s $17 trillion a year economy, the second largest in the world. Instead, such changes are widely seen as a signal that the state-owned banking industry will lend more and cut fees to private borrowers.

The ruling party has struggled to resume its activities after the Chinese business hub Shanghai and other industrial centers were shut down for weeks starting in late March to combat the virus outbreak.

Managers at the world’s busiest port of Shanghai say shipments have returned to normal, but economists say the flow of smartphones, consumer electronics, household appliances and other goods through complex supply lines will fully recover. He said it could take several months.

A previously released survey of manufacturers showed a decline in activity in July. New orders, exports and employment indicators fell.

Retail sales fell 0.7% year-on-year in the first half after plummeting 11% in April following the temporary closure of cities such as Shanghai.

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