China's leaders pledge support for economy, boosting markets

Summary

• Will step up policy adjustments to steady growth, politburo says
• Coronavirus, Ukraine conflict contribute to economic risks
• Challenges seen in stabilising growth, employment and prices

China will take steps to support its economy, including embattled internet platforms, as risks grow from its Covid-19 outbreaks and conflict in Ukraine, a top decision-making body of the ruling Communist Party said on Friday, lifting markets.

The coronavirus and conflict in Ukraine have contributed to economic headwinds in a crucial year for China and President Xi Jinping, who is expected to secure a precedent-breaking third leadership term in the autumn.

Private economists have said Beijing's target for economic growth of about 5.5% this year will be hard to achieve without significant stimulus, as lockdowns and other tough curbs to battle the pandemic create havoc for supply chains.

Friday's Politburo meeting chaired by Xi said it would support Covid-hit industries and small firms, speed work on infrastructure, and stabilise transport, logistics, and supply chains, according to a statement on the central government's website.

"We will strengthen macroeconomic policy adjustments to stabilise the economy, and strive to achieve the expected economic and social development goals for the full year," the statement quoted the Politburo as saying.

Top leaders conceded that efforts to stabilise growth, employment and prices were facing new challenges.

Chinese share prices surged in response to the pledges, particularly internet companies on which authorities clamped down last year, as the Politburo's pledge to "promote the healthy development of the platform economy" bolstered hopes the worst was over.

Authorities are set to have a meeting with internet majors next month, a person with knowledge of the matter said.

Analysts believe more stimulus measures and some easing of property curbs will be needed to hit the government's growth target for 2022.

"While these messages are positive, the key is about the specific policies and their implementation," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

"The economy is in trouble, with second-quarter GDP growth likely turning negative (year-on-year)," he said. "A significant change of macro policy is necessary to turn the economy around."

Ting Lu, chief China economist at Nomura, said he still expected the economy to grow 1.8% in the second quarter and 3.9% in 2022.

Financial markets have been hit hard over the past two weeks by fears that lockdowns will cause severe damage for China's economy and derail a global recovery just as many nations rebound from pandemic-led slumps.

The benchmark share index jumped more than 2% on Friday, with the tech-focused STAR50 Index surging nearly 5%. Shares of Hong Kong-listed tech firms rose, with the Hang Seng Tech Index up by 10%.

On Tuesday, Xi chaired a meeting that announced a big infrastructure push to boost demand, reinforcing Beijing's reliance on big-ticket projects to spur growth.

"Senior leaders called for a 'frontloading' of policy measures as well as increased support, confirming our view that the authorities will ensure a stable economic and political environment ahead of the 20th party congress later in the year," ANZ analysts said in a note.

"However, to attain the 5.5% target China may be borrowing from the future and incur more debt."

Beijing will also back "healthy development" of the property market, fanning hopes that some cities will relax supervision of escrow funds to help ease a liquidity crunch for developers.

But the Politburo said China would stick to a controversial dynamic zero-Covid policy to stamp out diseaase outbreaks while minimising the pandemic's economic impact.