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New Fiscal Policy Unleashed to Promote Chinese Economy

New Fiscal Policy Unleashed to Promote Chinese Economy

Renee Mu, Currency Analyst

This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- Reforms on the sales tax will largely reduce companies’ tax burden.

- Chinese energy consumption in 2015 has contracted for the first time in 30 years.

-China suspended new registration of online financing firms due to the high risks of their business.

To receive reports from this analyst,sign up for Renee Mu’ distribution list.

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active usersmonthly.

- Chinese energy consumption in 2015 contracted for the first time in 30 years. The amount fell by 0.5% to 4.24 billion tonnes of coal equivalent (TCE). The figure proves that the energy demand is waning and therefore Chinese energy industries are facing the same over-production issue that many other economies are contending with. That is why Chinese government has set reducing excess capacity as one of the top goals for 2016.

- On January 26, China’s central bank pumped an additional 360 billion yuan into the market through the 28-day and 7-day Reverse-Repos tools. This is the large daily injection from the PBOC in three years. The central bank chose to use short-term tools to meet the temporarily increased demand in yuan before the holiday season, rather than instituting a system-wide change by cutting bank reserve requirements.

- China’s overseas investment is expected to grow quickly, increasing by 16% in 2016 according to a report released by National Information Center. Foreign investment into China is expected to increase by 6% in 2016, indicating relatively stable growth. Researchers said that despite of increasing production costs, China is making adjustments to the industrial structure to facilitate foreign investment in its domestic market.

- Stock market headlines: Shanghai Composite Index broke below 2800. No new negative factors; it is emotional reaction.

Overall tone on the stock market from Sina News: Neutral.

To get more in-depth behind moves and themes in Chinese stocks, read our Currency Analyst, James Stanley’s article Stocks Cling to Support Ahead of Apple, the Fed and the BoJ.

Hexun News: Chinese leading online media of financial news

- China suspended registration of online financing firms due to the high risks of their business. Existing firms will be placed under investigation and tests. As of the end of November 2015, there are 2612 firms registered for online finance business according to China Banking Regulatory Commission. It is expected that only about one hundred firms with strong performance will pass the investigation and tests.

- The reform on sales tax has been expanded nation-wide. China is changing sales tax to value-added tax, which will largely reduce companies’ tax burden. However, the sales tax is currently fully owned by local governments and is the main source of their fiscal income. The split of other tax income between the central government and local governments is 3-to-1. It means that if the revised sales tax uses this ratio, local governments will lose a significant amount of income. Thus, the Ministry of Finance is working on a new ratio to make sure that not only private firms but also local governments will benefit from or at least not get hurt too much by the tax reform.

- Stock market headlines: Four factors led to the market plunge. The market bottom is coming.

Overall tone on the stock market from Hexun News: Neutral.

Written by Renee Mu, DailyFX Research Team

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.