"China's Q1 Economic Growth Rate Expected to Drop by 0.3~0.9%p... Possible Monetary Policy Easing"

[Image source=Yonhap News]

[Asia Economy Reporter Seo So-jeong] As the Chinese government focuses on boosting domestic demand through expanded investment and consumption recovery in response to concerns over a slowdown in economic recovery, it is expected to further strengthen policy support to alleviate management difficulties of small and micro enterprises and stabilize employment.

On the 3rd, the Bank of Korea's Beijing office stated, "The Chinese government is expected to expand infrastructure investment and ease real estate regulations mainly in small and medium-sized cities, while strengthening policy support to promote consumption in order to achieve the economic growth target (around 5.5%)."

It also anticipated that financial and fiscal support for small and micro enterprises will be expanded, and employment-first policies will be strengthened to ease employment difficulties.

Despite the Chinese government's expanded policy support for stable growth, the March Purchasing Managers' Index (PMI) for manufacturing and non-manufacturing sectors was evaluated to be significantly weaker than the previous month and market expectations due to the large-scale spread of COVID-19 and rising raw material prices caused by the Russia-Ukraine war. The manufacturing PMI in March fell to 49.5 from 50.2 in the previous month, dropping below the baseline (50) for the first time in five months since October last year.

In March, COVID-19 rapidly spread mainly in major metropolitan cities such as Shenzhen and Shanghai, and many confirmed cases occurred in areas near Beijing such as Hebei Province, leading the Chinese government to significantly strengthen quarantine measures including regional lockdowns. The impact of reduced production and business suspension in lockdown areas has spread to related industries through disruptions in production and logistics and decreased demand, further expanding the triple pressures of supply shocks, demand contraction, and weakened expectations on the Chinese economy.

The Bank of Korea said, "Financial institutions in China recently analyzed that the economic growth rate in the first quarter is expected to decline by about 0.3 to 0.9 percentage points due to the resurgence of COVID-19," adding, "Some in the financial market expect that, as the Chinese jeongbu emphasizes achieving the economic growth target, additional monetary policy easing such as policy rate cuts and lowering reserve requirement ratios may be possible in the second quarter."