Until China’s elderly become less hesitant about vaccines, its economy will remain resistant to stimulus
These limits on movement are wreaking economic havoc. Even before the worst restrictions were imposed, retail sales shrank by 3.5% year-on-year in March , according to figures released on April 18th. Catering services fell by more than 16%. Unemployment in China’s 31 biggest cities is now 6%, higher than in 2020, points out Zhang Zhiwei of Pinpoint Asset Management. Overall GDP grew surprisingly fast in the first quarter, by 4.8% compared with a year earlier.
What is holding the PBoC back? It says it will “refrain from a deluge of strong stimulus policies” and “strike a balance between internal and external equilibria”. It may worry that the monetary easing required to preserve growth within China would jeopardise the country’s external balance with the rest of the world. In particular the PBoC may fear that capital would flee if it cut interest rates too boldly at a time when America’s Federal Reserve is raising rates sharply.
Despite these bean-counting intrusions, local governments probably have enough money as a group, according to Hui Shan of Goldman Sachs, another bank. They have carried over unspent funds from last year and received additional transfers from the central government. But the money is not evenly spread. "Some provinces have projects but no money, others have money, but no projects," she says.
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