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China’s Market News: Lower Fiscal Income, Higher Property Price

China’s Market News: Lower Fiscal Income, Higher Property Price

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 guided the Yuan weaker following the release of July FOMC Minutes.

- The growth in China’s fiscal income and expenditures slowed down in July.

- A state-owned venture capital fund is set up to support innovative technology and industrial upgrading projects.

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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.

- The PBOC fixed the Yuan by -217 pips or -0.33% weaker against the US Dollar on Thursday after the FOMC Minutes for its July meeting was released. The minutes showed a slightly more-hawkish read from the bank regarding near-term rate hikes. The offshore Yuan (USD/CNH) weakened within the first minute following the release of the FOMC Minutes; however, it reversed the loss quickly and rose to fresh session highs.

- China’s Central Bank removed a net of 50 billion Yuan of liquidity on Thursday, the first withdrawal in two weeks. It was a surprise to market participants, according to the news agency, as the Central Bank had been injecting cash over the past few days in the effort of maintaining sufficient liquidity. Following the PBOC’s move, short-term Yuan benchmark rates rose on the day with a 0.1 basis-point increase in SHIBOR O/N. SHIBOR 3M, on the other hand, dropped to the lowest level in five months, indicating sufficient liquidity in a longer term.

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

- The growth of China’s fiscal income slowed down in July to 3.3% from 7.1% in the first half of 2016, mostly driven by the replacement of a business tax to a value-added tax. The Central Government’s income was 775 billion Yuan and the local governments’ income was 702 billion Yuan. The expansion of government’s expenditure slowed down in July as well, to 0.3% on an annualized basis. China has been adopting a proactive fiscal policy as the efficiency of monetary policy is declining. In the July report, the Finance Ministry stated that ‘amid continued downward pressure on the economy, the growth in China’s fiscal income could remain slow’. Under such a condition, the Chinese government may need to increase debt issuance in the effort of maintaining the proactive fiscal policy.

- China’s State Council approved to set up a state-owned venture capital fund on August 18th. The fund is worth 200 billion Yuan and designated to invest in innovative technology and industrial upgrading projects. Amid over capacity in traditional manufacturing sectors as well as decrease in global demand, innovative technology industries are considered to be the new driver to China’s economy. However, these industries have not generated sufficient momentum to substitute the old industries. Therefore, the Chinese government has been promoting the development of innovative technology and industrial upgrading.

Hexun News: Chinese leading online media of financial news.

- Chinese housing prices continued to increase in July on an average: Among 70 large- to medium-sized Chinese cities, 51 reported price increases, 16 reported price drops and 3 reported unchanged prices. Tier-two cities continued to show the fast growth: In Xiamen and Nanjing, real estate prices jumped 4.6% and 3.4% respectively in July from the prior month. On August 11th, Nanjing government has introduced multiple measures in the effort of curbing the soaring housing prices. Xiamen has launched tighten rules on home purchases in July. The effectiveness of housing measures could affect China’s monetary policy over the following periods, as right now the PBOC has prioritized the control on asset price bubbles.

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