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Chinese premier prioritises employment over economic growth

By Lawrence Gash

Uncertainty surrounding the scale of future stimulus prevails

China premier Li Keqiang

At an executive meeting of the State Council, China’s premier Li Keqiang outlined the effect of the Covid-19 virus and the Chinese government’s priorities for the rest of 2020.

With more than 80,000 cases and 3,000 deaths, the coronavirus has severely disrupted the Chinese economy.

Shutdowns and quarantines of millions of citizens brought productivity to a standstill and markedly reduced industrial demand for raw materials and other commodities. This triggered disruptions in global supply chains and an oil price war between Saudi Arabia and Russia.

Li Keqiang signalled his desire for China to get back to work noting that while workers have returned fairly quickly to larger businesses, production continues to be hampered by a poor resumption rate at small- to medium-sized enterprises.

The Chinese premier also prioritised employment over the performance of China’s economy stating that: “A slight fluctuation in China’s economic growth this year is not of major significance as long as employment remains stable.”

Having previously sought to maintain growth above 6 per cent in order to maintain employment and thus social order, the world’s second-largest economy now faces its first quarter of zero or negative economic growth since the time of the cultural revolution under chairman Mao.

Li Keqiang spoke of his desire to further cut the reserve requirement ratio (RRR) of Chinese banks “soon” in order to free up funding for small- and medium-sized businesses.

This, contrasted with the premier’s desire to improve employment rather than growth, has led some to speculate that Beijing will only introduce a moderate and targeted stimulus package now that the Covid-19 virus has peaked in China.

While China has taken steps to soothe the effect of the worst crisis since 2008, it arguably has less room to manoeuvre than during the global financial crisis due to its much higher debt to GDP ratio.

Indeed, last month China’s finance minister Liu Kin urged local governments to tighten their belts rather than “vowing more fiscal support”.

Kin further stated: “China will face decreased fiscal revenues and increased expenditures for some time to come, and the fiscal operation will maintain a state of tight balance. In this situation, it won't be feasible to adopt a proactive fiscal policy by expanding the fiscal expenditure scale.”

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