The Political Bureau of the Communist Party of China (CPC) leadership holds a meeting to promise to keep the yuan exchange rate stable on a reasonable and balanced basis and make arrangements for economic work in the second half of the year. Soon after the meeting, according to Asia Finance, the yuan climbed over 0.5%, signaling investors gained confidence from the politburo’s pledge to step up stimulus measures. Chinese stocks, especially property companies, also surged.
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Some Takeaways from the CPC Leadership Meeting
China's monetary authorities and politburo have made great efforts to defend against the weakening yuan recently. Here are some of the key takeaways from the CPC meeting on China’s directional policies to be taken in the second half of the year.
● Macro Policies: A "prudent" monetary policy, a stable yuan, livelier capital markets, and more are urged to boost business and consumer confidence. On the fiscal policy front, reductions in taxes and fees and the issuance of special local government bonds are flagged, reinforcing people’s expectations.
● Property: A "city-based" approach rather than nationwide changes is flagged in the further easing property market regulation background.
● Local Government debt: Formulate "a basket of plans" to resolve risks stemming from local government debt (over $9 trillion), seen as more construction line than April's meeting.
Some other issues were also discussed at the meeting while some issues are unaddressed.
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Yuan Surges After the Meeting
The yuan jumped in the onshore and offshore markets as investors embraced comments at the CPC meeting. As reported by Asia Financial, the yuan traded offshore at 7.1444 per dollar and was at 7.1454 per dollar in the onshore market, despite few details on exact stimulus measures.
Tommy Xie, head of Greater China research at OCBC (Oversea-Chinese Banking Corp.), said the meeting touching upon the sheer range of issues goes beyond market expectations overall. But Xie also pointed out that the execution and depths of these policies will be the real test though the sweeping breadth of the topics is appreciated.
China's major state-owned banks selling US dollars to buy yuan in both onshore and offshore spot markets on Tuesday also popped up the yuan, said sources.
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Further News
In the foreign exchange market, optimism was seen with the onshore yuan rising by 666 basis points against the US dollar to 7.1365 as of 4:30 pm on Tuesday. Experts said the rebound shows that the meeting which charted China's economy in the second half of the year was well accepted and welcomed by the market.
While on the other hand, the positive sentiment from China lifted 0.4% of the Australian dollar (often used as a liquid proxy for the yuan) to $0.6767. In Europe, the pound rose 0.22% for the first time since its seven straight sessions of losses to $1.2854. The euro also gained 0.12% to $1.1076, after sliding to a two-week low of $1.1059 earlier in the session.
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References: 1. China Daily 2. Reuters 3. Asia Financial
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