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Reuters
18 hours ago
- Business
- Reuters
China's central bank pledges to speed up policy response to economic conditions
BEIJING, June 27 (Reuters) - China's central bank said on Friday that it would adjust the pace and intensity of policy implementation in response to domestic and global economic and financial conditions. The world's No.2 economy has faced pressure this year due to U.S. President Donald Trump's imposition of tariffs on Chinese products and persistent deflationary pressure at home. "The external environment has grown increasingly complex and challenging, with weakening momentum in global economic growth, rising trade barriers, and diverging economic performance among major economies," the People's Bank of China (PBOC) said in a summary of its quarterly monetary policy committee meeting. The economy "still faces difficulties and challenges such as insufficient domestic demand, persistently low price levels, and multiple hidden risks," the bank said. "It is suggested that the intensity of monetary policy adjustments be increased, and the forward-looking, targeted and effective nature of monetary policy adjustments be enhanced," it added. The central bank said it will guide financial institutions to step up credit supply, and push for the lowering of overall social financing costs. It also pledged to enhance the resilience of the foreign exchange market, to guard against the risk of exchange rate overshooting, and to keep the yuan exchange rate "basically stable at a reasonable and balanced level." On the beleaguered property market, the bank said it will increase efforts to revitalise existing commercial housing and land inventory, and continue to consolidate the "stable momentum" in the sector.
Business Recorder
a day ago
- Business
- Business Recorder
China's yuan inches lower on weak industrial profit data
HONG KONG: China's yuan slipped from a seven-month high against the dollar on Friday, weighed down by disappointing industrial profit data, but progress in U.S.-China trade negotiations eased some of the pressure. Data showed China's industrial profits swung back into sharp decline in May from a year earlier, as factory activity slowed in the face of broader economic stress and a fragile trade truce with the United States. By 0345 GMT, the yuan was 0.04% lower at 7.1702 to the dollar after trading in a range of 7.1692 to 7.1747. In the previous session, the yuan strengthened to a high of 7.1565 per dollar, the strongest since November 8. Prior to the market opening, the People's Bank of China set the midpoint rate at 7.1627 per dollar, 144 pips firmer than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day. Separately, China's trade-weighted CFETS yuan basket index fell to 95.36 in early trade, its lowest level since January 4, 2021, based on Reuters estimates. Despite China's cloudy macroeconomic outlook, the yuan found some support thanks to a weakening U.S. dollar amid growing market concerns about the Federal Reserve's independence, and some silver linings in the Sino-U.S. trade war. The yuan is up 0.4% against the dollar this month, and 1.8% firmer this year. The United States reached an agreement with China on how to expedite rare earth shipments to the U.S., a White House official said on Thursday. U.S. President Donald Trump earlier confirmed the United States had signed a trade deal with China. 'Such an agreement is not a comprehensive trade deal, but it is still important to preserve the US-China trade truce and limit tariff increases. Despite uncertainty over negotiations,' DBS analysts said in a note. Sentiment towards the yuan can improve durably given a renewed official agreement, they said, expecting the offshore yuan to strengthen against the dollar towards 7.15. The offshore yuan traded at 7.1672 yuan per dollar, down about 0.04% in Asian trade. The dollar's six-currency index was 0.107% lower at 97.27.
AllAfrica
2 days ago
- Business
- AllAfrica
Will China finally become a consumer powerhouse?
Chinese Premier Li Qiang's bold talk of building a 'mega-sized consumer powerhouse' has a serious economic gravity problem. Although Li has only been on the job since March 2023, his boss, Xi Jinping, took the reins of power a decade earlier. Back in 2013, as Xi pledged to let market forces play a 'decisive role' in China's economy, a key policy priority was pivoting from exports and investment to a more domestic demand-led growth model. Recent data serve as a reminder of how much this aspiration remains, at best, a work in progress. Chronically weak consumer confidence and spending is pushing China further and further down the road to deflation. Although the 0.1% drop in consumer prices in May was mild, marking the fourth straight month of declines despite various stimulus moves, producer prices fell 3.3% year on year. And price cuts in key sectors like autos may hasten the downward trend. A decade-plus of foot-dragging on recalibrating growth engines is catching up with China. Donald Trump's trade war is generating ever bigger headwinds, while potential war in the Middle East and the resulting risk-off shift in markets is complicating the global economic outlook. At People's Bank of China headquarters, too. There, Governor Pan Gongsheng faces an unpalatable set of options. He could ease monetary policy to curb deflation and boost household and business confidence, or avoid rate cuts to keep the yuan exchange rate from falling. A weaker currency is a multi-edged sword. On the one hand, it would increase default risks among giant property developers as it becomes more expensive to make payments on overseas debt. On the other, it would set back Xi's years-long effort to reduce leverage in the financial system. Xi's yuan internationalization push also might take a hit. One of Xi's top reform prizes has been securing the yuan's inclusion in the International Monetary Fund's 'special drawing rights' basket, alongside with the dollar, euro, yen and pound. Last week, Pan told a business forum that Beijing remains determined 'to weaken excessive reliance on a single sovereign currency.' There, he detailed China's strategy to create a financial infrastructure to hasten the currency's global use and, including by increasing incentives for the trading of yuan foreign exchange futures. Of course, China needs to step up capital markets reforms and create a globally trusted regulatory system. 'China's rule of law is inferior to the US, it does not offer a large and deep pool of liquid assets that is open to foreign investors like the US,' says strategist Matt Gertken at BCA Research. Yet Li's plan to morph China 'into a mega-sized consumer powerhouse on top of its solid foundation as a manufacturing power' should be the most important priority of the Xi era. As Li puts it, 'this will bring vast markets to enterprises from all countries.' On one level, Li talked of China's desire to be viewed as the protector of globalization as Trump goes tariff wild. 'Economic globalization will not be reversed; it will only carve out a new path,' Li said. 'We will further integrate and connect with the global market.' He added that 'we will not and shall not return to closed-off and isolated islands.' Li also said China is well-positioned to 'move forward steadily, and continue to inject more stability and certainty into the world economy.' Though Li was careful not to mention Trump, the US leader was written between the lines in bold font. Li urged 'all parties to avoid the politicization of economic and trade issues.' Vice Premier He Lifeng amplified Beijing's desire to 'actively expand domestic demand to boost consumption,' as reported by the official Xinhua News Agency. Li, meanwhile, played up China's advances in areas such as electric vehicles and artificial intelligence. He said China would 'share indigenous technologies and innovative scenarios with countries around the world.' Clearly, Li is referring to Washington's efforts to deprive China of advanced semiconductors and other high-tech equipment on national security grounds. Yet, as recent data reminds, China's real battle is with domestic consumers who save more than they spend. There's not a moment to waste. For years, economists from East to West knew that China needed to prod consumers to save less and spend more. Unless Xi can truly pivot to a consumption-driven model, it will delay the moment when China surpasses the US in gross domestic product (GDP) terms. Or, even miss its chance to be the world's No 1 economy. Chinese households are serious savers. That's becoming a headwind all its own at a moment when Beijing is less willing to stimulate GDP, local governments are focused on reducing debt and deleveraging, and China's export machine is facing a rocky global economy and rising protectionist walls to its products. The PBOC's latest consumer survey, covering the October-December 2024 period, reports that 61.4% of Chinese mainlanders would rather save money than spend or invest it. This reading has been above 60% since late 2023. For years now, the International Monetary Fund has been among those urging China to get serious about increasing the role of consumer spending. As IMF economist Diego Cerdeiro puts it, 'an ambitious but feasible set of reforms can improve these prospects, importantly in a way that is inclusive by raising the role of household consumption in demand. Reforms such as gradually lifting the retirement age to increase labor supply, strengthening unemployment and health insurance benefits, and reforming state-owned enterprises to close their productivity gap with private firms would significantly boost growth in coming years.' It's not just China, of course. Brad Setser at the Council on Foreign Relations points out that 'the combined savings of China, Japan, Korea, Taiwan and the two city-states of Hong Kong and Singapore is about 40% of their collective GDP, a 35-year high. No other region of the world currently contributes more to the global glut in savings that has brought interest rates around the world down to record lows.' Setser adds that Asia's current account surplus – its excess of savings over investment – has increased significantly in the past two years and is now about as large, relative to the GDP of its trading partners, as it was prior to the global financial crisis of 2008. 'Without a policy push to bring down savings,' he says, 'East Asia's excess savings will continue to give rise to new economic and financial risks, both inside the region and globally.' Generally speaking, China's 1.4 billion people sock away about one-third of income. That's roughly three times the average of American consumers. Deploying that cash is the key to China becoming a domestic demand-led powerhouse. Consumption is the key to allowing Beijing to throttle back on fiscal policy and local governments to rely less on leverage. And it's central to phasing out the gigantic shadow banking system and letting the PBOC withdraw massive stimulus from the economy. The need for a recalibration from over-investment to consumption was well-known even before Xi rose to power over a decade ago. So is the need to create broader safety nets across sectors. But time and time again, the hard work of engineering it took a backseat to short-term considerations. Building a bigger network of stable and trusted safety nets would pay the biggest dividends. As Boston University economist Laurence Kotlikoff posits, the key is crafting a 'modern version of Social Security' that's 'fully-funded, transparent, efficient, fair and progressive' and 'features personal accounts that are collectively invested by the government at zero cost to workers.' Philosophically, such a system needs 'to be fundamentally reformed without undermining its legitimate mission — forcing people to save and insure and providing forms of social insurance that the private market would either not provide or provide poorly.' The point, too, he says is to build a social safety net that is not 'incomprehensible, inefficient, inequitable, and, most important, insolvent.' Easier said than done, of course. In general, say IMF economists, the 'prioritization of spending on households over investment would also deliver larger stabilization benefits. For example, means-tested transfers to households would boost aggregate demand 50% more than an equivalent amount of public investment. To ensure consistency across policies, fiscal policy should be undertaken within a medium-term fiscal framework.' Trouble is, the world's second-largest economy is still struggling with weak consumer sentiment and deflation. Whatever life there is in consumer activity, it tends to be driven by government-subsidized home goods trade-in programs, not organic economic optimism. Clearly, China has a 'mega-sized' opportunity to reorder the global economy – especially as Trump walls off the US economy in the name of making America great again. It just needs to act on increasing the role of domestic consumption, and not just talk about it. Follow William Pesek on X at @WilliamPesek
Time of India
3 days ago
- Business
- Time of India
China on cusp of seeing over 100 DeepSeeks, ex-top official says
China's advantages in developing artificial intelligence are about to unleash a wave of innovation that will generate more than 100 DeepSeek-like breakthroughs in the coming 18 months, according to a former top official. The new software products 'will fundamentally change the nature and the tech nature of the whole Chinese economy,' Zhu Min , who was previously a deputy governor of the People's Bank of China, said during the World Economic Forum in Tianjin on Tuesday. Zhu, who also served as the deputy managing director at the International Monetary Fund, sees a transformation made possible by harnessing China's pool of engineers, massive consumer base and supportive government policies. The bullish take on China's AI future promises no letup in the competition for dominance in cutting-edge technologies with the US, just as the world's two biggest economies are also locked in a trade war. The US sees China as a key rival in the field of AI, especially after DeepSeek shocked the global tech industry in January with its low-cost but powerful model. In addition to efforts to prevent China from securing advanced semiconductor manufacturing equipment, Washington is blocking Chinese companies from acquiring Nvidia Corp.'s high-end AI chips for training, citing national security concerns. Beijing is now pinning its hopes on domestic tech giants like Huawei Technologies Co. when it comes to advanced chipmaking. The emergence of DeepSeek triggered a rally in China's tech stocks, fueling optimism over Chinese competitiveness despite tensions over trade with the Trump administration and economic challenges at home. Bloomberg Economics estimates the contribution of high-tech to China's gross domestic product climbed to about 15% in 2024 — from near 14% a year earlier — and could exceed 18% in 2026. The World Economic Forum's annual meeting in Tianjin, also known as 'Summer Davos,' has attracted global business executives and world leaders. Singaporean Prime Minister Lawrence Wong and Vietnamese Prime Minister Pham Minh Chinh are scheduled to speak at the three-day event. Chinese Premier Li Qiang is expected to address the conference during the opening plenary on Wednesday and meet with participants. Despite a tariff truce negotiated a month ago with the US, American levies are still at high levels, with a more lasting deal still in question. Analysts polled by Bloomberg forecast GDP growth will slip to 4.5% this year, significantly below the official target of around 5%. It expanded 5.4% in the first quarter. 'The uncertainty brought by US tariff policy is an important factor that may lead to negative growth in global trade this year,' Zhu told reporters on the sidelines of the forum. 'The entire trade industrial chain has begun to slow, investments has begun to stop, so the impact is greater than the actual tariff rate.' Zhu said the US will likely see inflation pick up starting in August, as it takes some time for tariffs to feed through to the economy and for companies to use up stockpiles they accumulated before Trump hiked duties. Despite shocks from abroad, China's GDP likely grew faster than 5% in the second quarter, according to Huang Yiping, a member of the Chinese central bank's monetary policy committee. Speaking on another panel at the Tianjin forum, he pointed to the economy's solid performance in April and May. But despite unexpectedly strong retail sales in May, when they grew at the fastest pace since December 2023, Huang said China still needs to address the issue of insufficient consumption. 'Boosting consumption is still a big challenge, partly because the global external market is less open as before,' said Huang, who's also dean of the National School of Development at Peking University. 'For a large country, you can't continuously export your excess capacity,' Huang said. 'That's why I think the policy priority now is to first focus on domestic circulation.'
Business Recorder
3 days ago
- Business
- Business Recorder
China's yuan hovers near one-month high on Mideast ceasefire optimism
HONG KONG: China's yuan edged higher against the US dollar on Wednesday, nearing its strongest level in a month, as a truce between Israel and Iran continued to lift market sentiment. The ceasefire brokered by US President Donald Trump between Iran and Israel appeared to be holding, with both sides claiming victory on Tuesday after 12 days of war. By 0331 GMT, the yuan held its ground at 7.1684 to the dollar, hovering near the strongest level since May 26. The offshore yuan was little changed and traded at 7.1661 yuan per dollar in Asian trade. The yuan has strengthened 0.4% against the dollar so far this month, and is up 1.8% this year against a broadly weaker greenback. Prior to the market open, the People's Bank of China set the midpoint rate at 7.1668 per dollar, 41 pips firmer than a Reuters' estimate and near its strongest level since November 2024. The yuan is allowed to trade within a 2% band on either side of the official midpoint each day. Based on Wednesday's fixing, it can weaken as far as 7.3101 per dollar. 'The midpoint seems to be guiding spot rates toward appreciation,' said a trader at a Chinese bank, add that there was also significant buying interest below the current spot level, so the currency may not drop much. Yuan slips to 3-week low on Iran tensions, HK dollar hits weaker end of band Elsewhere, the Hong Kong dollar slipped to 7.85 per US dollar on Wednesday, hitting the weaker end of its trading band for a fourth consecutive session. Investors are watching closely if the Hong Kong Monetary Authority will drain liquidity from the banking system to support the currency. The dollar's six-currency index struggled to regain lost ground as investors clung to optimism over a fragile truce in the Middle East.
