Fearing a violent recession, China is looking for one via out of the 2022 crisis

A senior Chinese official called for further tax cuts as the world’s second largest economy grapples with the fallout from the outbreak of the new mutated Corona virus, “Omicron,” which required a strict tolerance approach. zero to contain the virus and a worsening of the real estate crisis.

“Our country’s economy is facing new downward pressure … taxes and administrative expenses need to be further reduced to ensure a stable economic start in the first quarter and macroeconomic stability,” Chinese Premier Li Keqiang told officials. financial and fiscal, Chinese Premier Li Keqiang told the Xinhua news agency. “.

Lee’s comments are the latest to indicate that Beijing is reconsidering its approach to politics in the face of growing economic headaches. During an important meeting last month, Chinese President Xi Jinping and other top leaders made “stability” a top priority for 2022. This was a big focus from the previous year, when the logic of “limiting uncontrolled expansion of capital “.

As the Chinese economy faces the possibility of a slowdown questyear, the government may look for ways to stimulate spending and keep the service sector. In his speech, Lee stressed the need to extend tax cuts for small, micro and individual businesses, a policy that originally expired in late 2021.

He added that the service sector also needs specific tax relief measures. The industry has been hit hard by the pandemic as people spend more time at home and take less money from eating out, traveling and other recreational activities.

Recent data showed that activity in the Chinese services sector increased in December compared to the previous month. But the uncertainty associated with the pandemic is weighing on business confidence, with sentiment dipping to a 15-month low.

In a recent research note, analysts at Capital Economics said: “The recovery in consumer spending has slowed in the face of recurring Covid outbreaks in late 2021 which have led to internal restrictions and a wider sense of caution among families”. They predicted that “this pattern will continue into 2022, in particularly if more transmissible variants will be exchanged “.

“The government should tighten its belts to help businesses,” Lee said, stressing the importance of the “global stability” of the corporate sector. The Chinese economy is struggling under the weight of the Corona virus epidemic, real estate problems and the regulatory storm that has hit the private sector hard.

Recently, authorities imposed a severe lockdown on Xi’an, a major industrial center in the Northwest, after a spike in coronavirus cases. And while the government is now promoting a reduction in cases there, the tougher restrictions have strained the industry, with two of the world’s largest chip makers warning of operational hurdles, raising concerns about memory chip shortages and on stopping car production.

Meanwhile, the regulations for real estate companies that began in 2020 exacerbated the pain of leading developers who were already taking on so much debt. The real estate sector, which accounts for nearly a third of China’s GDP, is now in a deep recession, with major players on the brink of collapse.

A year-long regulatory crackdown on technology, education and entertainment – which has swept via over $ 1 trillion worth of Chinese companies in global markets – has led to massive layoffs among many companies, crushing the labor sector even as it seeks to recover from the pandemic.

All of this, coupled with the threat of the omicron coronavirus variable that has overtaken most of the world, is prompting the Chinese government to think about the best way to support its economy in 2022.

The World Bank recently lowered its 2022 forecast for China’s growth from 5.4% to 5.1%, which represents the second slowest pace of growth for China since 1990, when the country’s economy was increased by 3.9% after international sanctions in 1989. The Chinese economy grew by 2.2% in 2020.

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