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NFP prints at 339k vs estimates of 190k, ave earnings in line at 0.3% MoM

China’s Market News: Fiscal Spending Soars in the First Half of 2016

China’s Market News: Fiscal Spending Soars in the First Half of 2016

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 strengthened the daily fix for the Yuan against the Dollar to a three-week high.

- China’s FX regulator said the Brexit result has not brought major impact to China’s capital flows.

- The Chinese government increased fiscal expenditures to 8.9165 trillion Yuan in the first half of 2016.

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Hexun News: Chinese leading online media of financial news.

- The PBOC continued to fix the Yuan stronger against the US Dollar in the onshore market. The benchmark reference rate was increased by 74 pips or 0.11% to 6.6872 on Thursday, the highest level in three weeks. Following the PBOC’s guidance, the onshore Yuan (USD/CNY) extended its rally for the third consecutive day and moved to 6.6735 as of 10:40am EDT. The offshore Yuan (USD/CNH), on the other hand, weakened slightly against the US Dollar to 6.6804. The divergence between the two Yuan rates hints at wrestling between the Central Bank’s guidance and market moves.

SAFE News: China’s foreign exchange regulator.

- The spokesman of SAFE, Wang Chunying, said that the UK’s referendum has attracted considerable attention. Yet, the Brexit result has not brought major impact to China’s capital flows. The pressure on cross-border capital outflows has been steadily easing. In June, China’s commercial banks sold a net of $12.8 billion worth of foreign exchange, rising slightly from $12.5 billion in May. Under China’s current FX regulation, Chinese companies that receive foreign exchange from trade or other businesses are required to sell the portion of foreign exchange above the quota to commercial banks. This contributes a large part of China’s foreign reserves. When companies need to use foreign exchange for business, they may purchase foreign currencies in banks, with sufficient proof of the business.

In terms of Yuan rates, the spokesman said that expectations on Yuan devaluation are weakening.The average gap between the onshore and offshore Yuan rates narrowed to 97 pips in June from 162 pips in Mayon a daily basis.

China Finance Information: a finance online media administrated by Xinhua Agency.

- China’s fiscal expenditures in the first half of 2016 jumped +15.1% to 8.9165 trillion Yuan compared to a year ago. The fiscal income over the same period grew +7.1% to 8.5514 trillion Yuan. The higher growth rate and the larger absolute amount of spending show that China is implementing a proactive fiscal policy in the effort of supporting the slowing economy. In terms of sectors, education, social welfare as well as healthcare sectors are government main focuses. Expenditures on these three areas took up 14.69%, 13.45% and 8.05% respectively of all the spending. Investing in these sectors will not only help to improve the living standard of Chinese household; more importantly, it could help to release household savings, and in-turn, bring additional momentum to domestic consumption.

- As of the end of 2Q, the existing Yuan loans issued by financial institutions have reached 101.49 trillion Yuan, increasing +14.3% from a year ago. The growth in corporate loans dropped in the second quarter to 9.7% from 10.4% in the last quarter, showing slowdown in business expansion. However, loans made to small-to-micro businesses increased at a fast pace; as of the end of June, these loans have risen +15.5% to 19.31 trillion Yuan. This indicates smaller companies may bring more momentum to the economy in the coming periods than the larger state-owned enterprises.

Mortgages continued to soar in the second quarter: the existing credit issued to home purchasers jumped +24% to 23.94 trillion Yuan from a year ago. Coupled with the New Yuan Loans print as well as the housing prices read released earlier, the risk of price bubbles in real estate is increasing.

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