Policy shifts on housing and tech show China has a plan to get through Covid-19 struggles

Beijing recognises the need to allocate resources to cope with the current situation, but there also needs to be a parallel strategy to rekindle economic growth
The recent policy announcements are not by chance but are choreographed and intended to enhance China’s prospects once the health crisis is resolved

Neal Kimberley

Published: 9:00pm, 27 Dec 2022

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As 2022 draws to a close, China is beset by surging cases of Covid-19. Beijing’s decision to drop its “zero-Covid” policy was always going to lead to an upsurge in infections, but that is of no comfort to those personally affected by the turn of events. Neither does this tidal wave of infection necessarily sit well with a positive view of China’s prospects for 2023, but China will get through this.

There is no denying that Beijing’s zero-tolerance policy towards Covid-19 was effective in containing the virus’ spread, but it came at great economic cost and couldn’t wipe out the virus. Abandoning the “zero-Covid” approach, even if the timing of the decision was also influenced by protests, was ultimately an acknowledgement of the increasing economic cost of a policy that was not going to extirpate the virus.

Yet, the ending of the “zero-Covid” policy comes with risks to the credibility of the authorities in Beijing. Surging cases of Covid-19 and hospitalisations have put the healthcare system under extreme pressure, even if such an unwelcome situation is an inevitable consequence of the move towards “living with the virus”.

Though this process is going to be painful and the human costs high, China will get through this health crisis. Beijing recognises there is an immediate requirement to allocate resources to try to cope with the current situation, but there also needs to be a parallel strategy in place that offers China the best chance of rekindling economic growth once the country has navigated its way through its present predicament.

There does seem to be a strategy. For example, Beijing now seems to be moving decisively to address problems in China’s property market that have been festering for a good while.

“We should support the rigid demand as well as improving housing demand and implement the 16-points financial measures,” read a transcript of a State Council meeting chaired by Premier Li Keqiang, published on December 21 by state broadcaster CCTV. The concept of “rigid demand” is a reference to homes that people purchase to inhabit, not for investment purposes, while “improving housing demand” refers to people upgrading to better, more costly houses.

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This strategy isn’t grounded in bailing out deeply indebted property companies that are perceived to have made poor business decisions. Rather, it looks at getting houses and blocks of flats – many of which are already partially built – completed and inhabited.

That is a process that will necessarily stimulate activity in the construction sector. It will also drive up demand for the materials that are required to complete the builds, such as steel for the actual construction and copper for the electrical wiring, activity which will then cause ripple effects throughout the economy.

Beijing’s determination to effect policies now that will help nurture economic activity down the line is also evident in the way Chinese policymakers are now reaching out supportively to China’s private-sector companies.

Li Qiang, China’s prime minister-in-waiting, recently assured entrepreneurs during a speech to the All-China Federation of Industry and Commerce – a state-backed association of the country’s top private businesses – that their role in the national economy will be cherished and appreciated.

China’s prime minister-in-waiting Li Qiang, seen here attending the annual Central Economic Work Conference in Beijing on December 16, has made a point of assuring entrepreneurs that their role in the national economy will be cherished and appreciated. Photo: Xinhua

Additionally, an article in the People’s Daily quoted President Xi Jinping as saying that, “I am a consistent supporter of private companies and have worked in places with relatively developed private economies.”

There has also been a major pivot in Beijing’s attitude towards the technology sector. Having pledged in the 2020 economic work conference to prevent the “disorderly expansion of capital”, Beijing rolled out a regulatory crackdown on China’s technology firms. The crackdown saw, among other things, billions of dollars knocked off the market value of leading Chinese tech firms.

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In stark contrast, a readout by Chinese state television after a two-day Central Economic Work Conference in Beijing on December 16 stated that China’s “platform enterprises”, a term that encompasses large internet firms such as Alibaba Group Holding and Tencent Holdings, will be backed to “fully display their capabilities” in bolstering economic growth, job creation and international competition.

That is quite a change in the official tone towards China’s tech sector. The bottom line is that none of these recent policy announcements are occurring in isolation or by chance. They are all choreographed and intended to enhance China’s prospects once this present health crisis is resolved.

The surge in Covid-19 cases and hospitalisations in China as 2022 draws to a close is dispiriting. Although China is again being sorely tested by Covid-19, it will get through these dark days.

Neal Kimberley is a commentator on macroeconomics and financial markets