China’s rebound hits a wall, and there is ‘no quick fix’ to revive it

When China suddenly dismantled its lockdowns and other Covid precautions last December, officials in Beijing and many investors expected the economy to spring back to life.

It has not worked out that way.

Investment in China has stagnated this spring after a flurry of activity in late winter. Exports are shrinking. Fewer and fewer new housing projects are being started. Prices are falling. More than 1 in 5 young people is unemployed.

China has tried many fixes over the past few years when its economy had flagged, including heavy borrowing to pay for roads and rail lines. And it spent huge sums on testing and quarantines during the pandemic. Extra stimulus spending now with borrowed money would spur a burst of activity but poses a difficult choice for policymakers worried about the accumulated debt.

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“Authorities risk being behind the curve in stimulating the economy, but there’s no quick fix,” said Louise Loo, an economist specializing in China in the Singapore office of Oxford Economics.

China needs to right its economy after closing itself off to the world for almost three years to battle Covid, a decision that prompted many companies to begin shifting their supply chains elsewhere. Xi Jinping, China’s leader, met Monday with US Secretary of State Antony Blinken in an attempt by the two nations to lower diplomatic tensions and clear the way for high-level economic talks in the weeks ahead. Such discussions could slow the recent proliferation of sanctions and countermeasures.

The economy has been particularly weak in recent weeks, and Chinese government officials have been dropping hints that an economic stimulus plan may be imminent.

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“In response to the changes in the economic situation, more forceful measures must be taken to enhance the momentum of development, optimize the economic structure, and promote the continuous recovery of the economy,” the country’s State Council, or cabinet, said after a meeting on Friday led by Li Qiang, China’s new premier.

Beijing has taken some steps to revitalize economic growth. Tax breaks are being introduced for small businesses. Interest rates on bank deposits have been reduced to encourage households to spend more of their money instead of saving it. The latest government measure was announced Tuesday when the state-controlled banking system reduced its benchmark interest rates for corporate loans and home mortgages.