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China's Market News: Yuan Prices Pause while Real Estate Prices Soar

China's Market News: Yuan Prices Pause while Real Estate Prices Soar

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.

- The PBOC fixed the Dollar/Yuan pair below 6.70 on July 19th despite breakouts in both onshore and offshore Yuan markets.

- China’s housing prices in June continued to rise, which may exacerbate the risk of price bubbles.

- State-owned Enterprises reported contractions in the first six months of 2016.

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Hexun News: Chinese leading online media of financial news.

- The onshore Yuan pulled back from five-and-half-year lows on Tuesday after the PBOC set the daily fix in the Dollar/Yuan rate stronger than expected, to 6.6971. We discussed yesterday that the level of 6.70 carries with it psycho-social importance and thus is under close watch by the PBOC. Although both onshore and offshore Yuan rates have broken 6.70, the PBOC has not yet set the daily fix above this key level, which indicates the Chinese Yuan may retrace around this level for a while until PBOC’s recognition is seen.

National Bureau of Statistics of China

- Housing prices in China continued to increase in June according to the National Bureau of Statistics. China’s housing prices are key indicators that the PBOC is watching for potential price bubbles. Fast growing housing prices may affect the PBOC’s monetary policy. In June, 55 cities reported increases in housing prices of new home sales, 10 reported decreases and 6 reported no change. The largest monthly growth was seen in tier-two cities: Housing prices increased +4.9% in Hefei and +4.7% in Xiamen. On an annualized basis, real estate prices in Shenzhen jumped +47.4% in June. The New Yuan Loans report released earlier showed that 2.95 trillion Yuan out of the 7.53 trillion Yuan of loans issued over the past six months have been driven into the real estate sector. The continued rising home prices are partially resulting from such a huge amount of credit. This further reduces the odds of the PBOC introducing new easing measures in the near-term.

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 users monthly.

- China’s overseas investment increased by +58.7% to 580.28 billion Yuan over the first six months of 2016. In the month of June, overseas investments rose +44.9% to 100.17 billion Yuan. China has been encouraging domestic companies to invest aboard, especially in high-technology industries. Companies that are lacking domestic investment opportunity but holding excessive cash have benefited from expanding overseas businesses. For instance, investments in projects in One-Belt-One-Road countries increased +37% to $51.45 billion over the past six months. However, such investments have side effects: it will reduce China’s foreign reserves as overseas purchases and investments will need foreign currencies. Thus, even if there is no capital outflow pressure coming from financial markets, China’s foreign reserves is less likely to increase significantly with promotions on investing to overseas.

- Headsup: China’s Premier Li Keqiang will meet World Bank President Jim Yong Kim, International Monetary Fund Managing Director Christine Lagarde, as well as World Trade Organization Roberto Azevêdo in Beijing for round-table discussions from July 22rd to 24th. The discussion will cover economic growth, structural reforms, trade, finance, employment condition and other topics.

- China’s State-owned Enterprises (SOEs) reported major contractions in the first half year in 2016 according to State-owned Assets Supervision and Administration Commission of the State Council (SASAC). The total profits of SOEs dropped -4.5% to 1.1 trillion Yuan from a year ago. Specifically, the profits of SOEs led by the central government fell -3.0% to 623.47 billion Yuan. The contractions in SOEs are mainly led by the supply-side reform introduced at the end of last year, such as capacity cuts in manufacturing firms. Despite these contractions, the SASAC said they will continue to implement the supply-side reform over the second half of this year. In the long run, it will benefit the economy, but in the short-term, we may expect additional contractions as well earnings losses to be seen in SOEs.

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