Here’s how China is supporting its Covid-stricken economy

China's pledges for more economic support are mounting as a worsening Covid outbreak and efforts to contain infections threaten to upend global supply chains and push a critical government growth target out of reach. 

President Xi Jinping has made clear he's sticking with China's strict Covid Zero strategy, which involves locking down entire cities and provinces to eliminate community spread of the virus. To limit the disruption to the economy though, Beijing is taking a number of supportive steps, from central bank aid and tax cuts, to measures that allow factories to keep running. 

With outbreaks in places like the trade and financial hub Shanghai becoming difficult to control, it's unclear how effective those initiatives will be. Several economists have already downgraded their gross domestic product growth forecasts for the year to 5% or less -- well below the government's target of about 5.5%. 

Here's a look at several of the measures announced or taken in recent months:

Factory Bubbles

As some major manufacturing hubs have locked down across China to contain the virus, many companies have turned to so-called closed loop systems, or factory bubbles, to keep production humming, a plan endorsed by government officials who have laid out rules for how to resume work with minimal risk of Covid spread.

Such bubbles allow businesses to operate by letting employees live and work on site, so they can avoid running afoul of movement restrictions. The workers are regularly tested and subject to strict hygiene rules intended to keep Covid out of the factories. Governments have been encouraging companies to make plans for closed-loop management, most notably in Shanghai where lockdowns have stretched for weeks and are hampering production. 

But those systems aren't perfect, as companies run short of logistics and workers. Tesla Inc., for example, only has inventory for just over two weeks based on its new closed-loop schedule, while workers locked in Volkswagen AG's Shanghai factory don't have sufficient supply of the auto parts needed to make cars.

Eliminating Checkpoints

China's Ministry of Transport tried this month to solve logistics snags by ordering that no Covid testing checkpoints be set up in the main lanes of highways. The ministry called for a relaxation of mobility restrictions for logistics workers at checkpoints at other locations along the roads during the outbreak, as trucking services have been battered by road closures and cumbersome Covid requirements.

Trucks dominate China's local transportation, hauling about three-quarters of total freight, according to data from the transport ministry. But Covid Zero orders are creating difficult conditions for the truckers themselves, as drivers have been hampered by the need to undergo compulsory mass testing being conducted in cities like Shanghai, along with the need to show negative Covid results at multiple checkpoints. 

Possible Exemptions

Top Chinese authorities have also promised stronger measures to stabilize supply chains, including extra help for qualified firms to ensure they can stay open amid Covid controls.

The government will establish "white lists" of companies in sectors including automobiles, semiconductors, consumer electronics, food, equipment manufacturing and medicine and foreign trade, according to a recent state media readout of a meeting attended by Vice Premier Liu He and chaired by State Councilor Xiao Jie. 

The report in the official Xinhua News Agency didn't provide more details, although a similar "white list" of companies in Shanghai was disclosed late last week allowing companies to make plans to resume production.

Reduced Quarantine

China has started trialing looser quarantine requirements in some cities, including Shanghai and Guangzhou. 

Eight cities last week reduced the quarantine period for overseas travelers and those who've had close contact with infected individuals to 10 days from 14 days, as part of a month-long trial, according to people familiar with the matter.

Apartment complexes, retail outlets, office buildings and other locations locked down because of infections will also be allowed to open after 10 consecutive days without a positive test result, shortened from the 14 days previously required, the people said.

PBOC Measures

The People's Bank of China has rolled out several announcements in recent weeks, though its actions have so far indicated restraint.

• The PBOC detailed 23 measures and other promises largely focused on boosting lending and providing financial support to industries that are suffering from virus-related restrictions. The list included guidance for banks to extend more loans, along with references to the PBOC's relending program. That program, which provides funds for banks to lend to sectors in need, is expected to lead to 1 trillion yuan ($157 billion) in additional bank loans.
• Earlier this month, the central bank gave lenders a modest cash boost by reducing the reserve requirement ratio -- the amount of money banks have to keep in reserve -- for most banks by 25 basis points. The ratio was dropped by 50 basis points for smaller lenders. However, the PBOC left its one-year policy interest rate unchanged. And Chinese banks just maintained their lending rates for a third month.

Stabilizing Property

Along with ongoing guidance from the People's Bank of China for banks to step up lending, more cities have relaxed home purchase and mortgage rules since policy makers vowed in mid-March to prevent a "disorderly collapse" in the property market. 

More than 60 municipal authorities loosened housing regulations in the first quarter. They include four provincial capital cities that abandoned signature restrictions on how many residences each household can own and how long they should hold properties before selling them. 

Read More: PBOC Says Banks Should Help Homeowners Hurt by Covid

Banks in more than 100 cities have lowered mortgage rates by 20 to 60 basis points since March, the head of the central bank's financial market department Zou Lan said at a briefing last week. There was a rebound in medium- and long-term loans to households, which are a proxy for mortgages, in March from a contraction in February, though the actual value was still lower than a year earlier.

China's largest banks are also allowing residents in Shanghai to delay their mortgage payments as the city's outbreak continues.

Services Incentives

China's government in February said it would refund up to 90% of unemployment insurance premiums paid in the previous year to small services companies that don't fire employees or minimize layoffs. That was up from a previous 60% ratio, according to an announcement at the time from the National Development and Reform Commission, the state economic planner. 

The commission also said a policy of a temporary reduction of unemployment insurance and work-related injury insurance rates will be extended in 2022, and that provinces with relatively large balances in these insurance funds could delay collection of premium payments from catering, retailing and tourism companies for no longer than a year.

Tax Relief

China has promised on several recent occasions to reduce the burden on its taxpayers, another measure of economic relief. 

Beijing in March announced 2.5 trillion yuan in tax cuts, more than double the size of 2021 and the fifth year of such reductions. The central bank at that time also said it would send more than 1 trillion yuan in profits to the finance ministry to help pay for tax rebates and other government expenses.

Since March, regions that have been hit by the outbreak have announced several measures to help taxpayers, including permitting companies to delay or reduce social security and housing fund payments. Some regions have also postponed tax reporting, exempted small businesses from paying rent on state-owned property for several months, and offered temporary subsidies for corporate expenses on things like power and water. 

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.