Worse-than-expected growth exposes vulnerability of China’s anti-virus strategy
HONG KONG -- August real economic indicators further confirmed a continuing deceleration of growth in mainland China amid recent regulatory storms and Delta variant virus flare-ups as industrial production, retail sales and fixed asset investment all tumbled.
BBVA Bank in a research report says that, presumably, Chinese authorities were planning to take the time window of China's "first-in, first-out" of the pandemic to press ahead structural reforms towards a long-term "common prosperity".
"Looking ahead, we believe that growth will continue to fall from the previous high readings in the rest of the year, particularly in industrial production, real estate investment and retail sales," BBVA says.
"Chinese authorities need to review their current approach to deal with the Covid-19 virus. As the new Delta variant virus has proved to be highly infectious, the economic cost of implementing the existing "zero case" policy has become increasingly unaffordable.
"However, the ongoing worse-than-expected growth deceleration might force them to re-consider deploying pro-growth measures to balance the growth and reforms.
"A number of pro-growth measures are likely to be employed in the coming months, including more targeted loosening measures such as at least one more RRR cut, together with the speed-up of local government bond issuance."