Beijing to compensate for pandemic-induced economic losses in 2H 2022

China’s National Development and Reform Commission said it is “crucially important” for the country to adopt supportive policies this quarter aimed at helping the economy recover from the recent pandemic-related losses.

Chinese authorities re-imposed lockdowns in 2Q 2022 in an effort to curb Covid flare-ups in several manufacturing hubs. As a result, the GDP growth rate declined sharply to 0.4% y-o-y, the second lowest mark after -6.8% y-o-y in 1Q 2020. The second half of 2022 is the best time to deploy such stimulus, according to Yang Yinkai, deputy secretary general of the Commission.

Meanwhile, PBoC Deputy Governor Liu Guoqiang said the central bank has ample room for monetary policy action, but will avoid flood-like stimulus in order to achieve a sustainable recovery. However, the PBoC is concerned about the weakness of the national currency, saying authorities will be able to keep the yuan stable despite pressures from aggressive monetary policy tightening stateside.

The regulator on Monday said that it will cut the foreign exchange reserve requirement ratio for financial institutions from 8% to 6% effective September 15 in a bid to improve “financial institutions’ ability to use foreign exchange capital.” The central bank last cut the forex reserve requirement ratio in May, lowering it by 1 pp.