China may chalk up more debt as lockdowns hit the economy

China may have to issue more debt as it tries to keep growing in the face of Covid lockdowns that are stunting its economy.

The country has signaled in recent weeks that it still wants to meet its growth target of 5.5% this year.

China’s Politburo meeting on April 29 sent a “strong signal that policymakers are committed to this year’s GDP target despite downside risks from COVID-19 disruptions and geopolitical tensions,” ANZ Research analysts wrote in a note on the same day.

Chinese state media on Friday reported details of that Politburo meeting, in which officials promised more support for the economy to meet the country’s economic growth target for the year. That support would include infrastructure investment, tax cuts and rebates, measures to boost consumption, and other relief measures for companies.

That’s as foreign investment banks are predicting growth will fall significantly below the 5.5% number, with manufacturing activity slumping in April.

That means China is likely to rack up more debt as it tries to meet its growth targets, according to market watchers.

“To attain the 5.5% target, China may be borrowing from the future and incur more debt,” said ANZ Research’s senior China economist, Betty Wang, and senior China strategist, Zhaopeng Xing.

Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, told CNBC last week that China is set to ramp up infrastructure spending.

From Beijing’s point of view, increasing such fiscal spending as well as relaxing debt restrictions would be more desirable than monetary easing, he told CNBC’s “Squawk Box Asia.”

However, one hindrance to the government’s efforts toward infrastructure investment would be the Covid-related restrictions that are indiscriminately being imposed everywhere, Tilton said.

“There are a lot of restrictions around the country even in some cases in places where there aren’t any Covid cases — more precautionary in nature,” he said. “So one of the obstacles to the infrastructure campaign is going to be keeping Covid restrictions targeted on just the areas where they’re most needed.”

One option for the government is to issue so-called local government special bonds, Tilton said.

Those are bonds that are issued by units set up by local and regional governments to fund public infrastructure projects.

In the beleaguered real estate market, the government has also been encouraging lenders to support developers, Tilton said.

Borrowing more to boost growth would be a step backward for Beijing, which has been trying to cut debt before the pandemic even began. The government has targeted the property sector aggressively by rolling out the “three red lines” policy, which is aimed at reining in…