World News | China cuts interest rates to prop up weak economy

BEIJING, Aug. 15 (AP) China’s central bank cut a key interest rate on Monday to support weak economic growth at a politically sensitive time as President Xi Jinping is believed to be trying to expand his grip on power.

The ruling Communist Party effectively admitted last month that it would miss its official 5.5 percent growth target for this year after anti-virus containment measures disrupted trade, manufacturing and consumer spending. The blow to corporate debt has led to a slump in activity in the sprawling real estate sector.

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The People’s Bank of China slashed the one-year lending rate to 2.75 percent from 2.85 percent and injected an additional 400 billion yuan ($60 billion) into the lending market after government data showed weak factory output and retail sales in July.

The decision shows Beijing putting debt concerns on hold for now and trying to stem a politically sensitive recession ahead of a ruling party meeting in October or November, when Xi is expected to try to break with tradition and grant himself a third five-year term as leader.

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Capital Economics’ Julian Evans-Pritchard said in a note that the central bank “appears to have decided that it now faces a more pressing issue”.

The economic slowdown has exacerbated political resistance for Xi Jinping, China’s most powerful leader since at least the 1980s, although he is widely expected to succeed. Some analysts believe he may be forced to compromise and share more of his broad powers with other party leaders.

Despite downward pressure on growth, party leaders confirmed their commitment to a strict “coronavirus zero” strategy in a July 29 statement. It dropped its previous reference to a growth target after the economy expanded by just 2.5% year-on-year in the first half of 2022.

Official data on Monday showed factory output fell 0.1% in July from a month earlier. Retail sales contracted 0.4% from June.

The latest rate cut and additional loan funding are paltry compared to the $17 trillion-a-year economy of China, the world’s second-largest economy. Instead, the changes are widely seen as a signal that the state-owned banking industry is offering more loans and lower fees to commercial borrowers.

The ruling party is struggling to resume activity after China’s commercial hub Shanghai and other industrial hubs were shut down for weeks from late March to combat the virus outbreak.

Officials at the world’s busiest port of Shanghai say shipping has returned to normal, but economists say the flow of smartphones, home appliances, consumer electronics and other goods through complex supply lines could take months to fully complete. recover.

An earlier survey of manufacturers showed a contraction in activity in July. Indicators of new orders, exports and employment fell.

Retail sales fell 0.7% year-on-year in the first half of the year, following an 11% plunge in April following the temporary closure of Shanghai and other cities. (Associated Press)

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