China adds 1 trn yuan more of stimulus to rescue economy, bolster growth

China stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of measures to bolster growth and curb the fallout of repeated Covid lockdowns and the crisis in the property market.

The State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quota.

At a meeting chaired by Premier Li Keqiang, the State Council vowed to make use of “tools available in the toolbox” to maintain a reasonable policy scale in a timely and decisive manner, according to a readout from state broadcaster CCTV.

At the same time, the State Council said the economy won’t be flooded with excessive stimulus and China won’t overdraw on its future policy room, reiterating officials’ relatively cautious stance on stimulus this year.

China’s stop-start reopening from Covid lockdowns as well as a yearlong property slump has weakened growth, putting the government’s official goal of “around 5.5%” well out of reach. Officials have downplayed the target in recent months as they stick to the Covid Zero policy of eliminating infections, with economists polled by Bloomberg projecting growth of less than 4% this year.

Goldman Sachs Group Inc. economists said the measures announced Wednesday won’t be enough to lift the overall growth rate from the 3% they’re projecting.

The latest steps “could help offset the sharp contraction in government revenue and support infrastructure investment growth to some degree,” the economists including Maggie Wei said in a note. But overall growth “will remain sluggish” barring major policy easing measures, due to the very weak property sector and disruptions from Covid controls, they said.

The 19 measures come on top of several recent stimulus steps: policy banks have been allocated a total of 1.1 trillion yuan of financing for infrastructure projects since June; the central bank delivered a surprise 10 basis-point interest rate cut last week; and in May, Beijing announced about 1.9 trillion yuan of support measures in a 33-point policy package, including targeting small businesses.

The State Council on Wednesday also pledged to approve a batch of infrastructure projects. Local authorities are encouraged to use city-specific credit policies to support reasonable housing demand, it said.

Amid an energy crunch triggered by drought, support was also directed toward state-owned power generation companies, which will be allowed to sell 200 billion yuan of bonds. Another 10 billion yuan of subsidies will be offered to the agricultural sector.

The State Council also pledged to continue lowering financing costs and introduce measures to support the development of private businesses and platform companies.

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