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Chinese Yuan Strengthens As Beijing Prepares for 2019 Economic Plan

December 12, 2018 at 17:42 by Andrew Moran

Chinese yuan denominationsThe Chinese yuan is strengthening midweek as the federal government prepares to unveil its economic game plan. After a disappointing 2018 performance, mostly due to the US-China trade war, Beijing is looking to spur growth by introducing a series of measures that President Xi Jinping hopes will limit the damage.

President Xi and the nation’s top leaders will converge on the Central Economic Work Conference, an annual gathering of ministers, provincial governors, senior advisers, and state leaders. The event will allow officials to determine what will be done to keep the country on track, especially during the 90-day trade truce with Washington.

Analysts are expecting there will be a mix of fiscal stimulus, tax cuts, and market openings to stop the serious slowdown and help grow the economy. Iris Pang, the chief Greater China economist at ING, told the South China Morning Post that Xi will prove the critics wrong and announce reforms.

The key message will be on new areas of opening … there are already some piecemeal opening-up measures [drafted by Beijing] ahead of the G20 summit, and they could be packed into a big release this time.

Right now, it is widely expected that the government will inject nearly $600 billion into the economy next year.

But Citi says that the trade war damage has already been done to the world’s second-largest economy. The financial institution projects that the country’s export growth will be cut in half, potentially threatening more than four million jobs.

It is a reality that China is losing some of its cost competitiveness, especially in labor-intensive and low-value-added sectors. Although shifting the supply chains is not feasible in real time, manufacturers may seriously weigh the option of leaving China if punitive tariffs last longer than expected.

Small businesses are just as pessimistic about the short-term future. It is estimated that approximately 540,000 small businesses could be impacted by the cooling economy, despite the federal government vowing to bolster growth. The main concern for smaller enterprises is the tax situation because the government has already tightened collection and is cracking down on tax evaders, especially companies in the import sector.

The USD/CNY currency pair tumbled 0.28% to 6.8800, from an opening of 6.8995, at 16:01 GMT on Wednesday. The EUR/CNY jumped 0.03% to 7.8167, from an opening of 7.8140.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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