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Chinese Yuan Mixed on Stimulus, Corporate Spending

March 19, 2019 at 20:10 by Andrew Moran

A fan of 50-yuan billsThe Chinese yuan is mixed against a basket of currencies on Tuesday as investors are trading on a wide array of issues in the world’s second-largest economy. Beijing announced new stimulus measures, corporate spending and yuan deposits slumped to multi-year lows, and analysts are hoping for a second-quarter rebound. It has been an interesting week so far for China.

In order to stimulate the slowing economy, Beijing announced a tax cut for manufacturing and other sectors beginning April 1. The decrease in the value-added tax (VAT) is meant to reverse the slumping economy, which is leaving some analysts hopeful that China can turn it around in the April-to-June period.

Unlike previous stimulus packages, the government has been unleashing a series of across-the-board tax cuts, in addition to other government spending initiatives, particularly on infrastructure. But the experts are sounding the alarm that the tax cuts will weigh on regional and local governments, with an estimated revenue shortfall of $60 billion.

But it might not be enough to prompt corporations to spend, says a Reuters analysis of Refinitiv data. The numbers suggest that corporate spending will fall for the first time since 2019 as capital expenditure will tumble 4% in 2019. The pace of revenue growth is projected to be flat at 3.3%. Amid a cooling economy, the US-China trade war, and Brexit chaos, Chinese companies are conserving cash to weather the economic storm.

According to the People’s Bank of China (PBOC), Chinese yuan deposits held by financial institutions operating in Taiwan plunged to the lowest level in five years last month. The banks slashed their deposit rates, making the yuan less attractive to investors. The data found that the balance of yuan deposits in Taiwan totaled $41.93 billion at the end of February.

While some financial markets are beginning to shun the peer-to-peer decentralized currency bitcoin and other cryptocurrencies, one report suggests that the yuan has recorded a surge inflow into the crypto market.

The USD/CNY currency pair dipped 0.02% to 6.7119, from an opening of 6.7130, at 19:50 GMT. The EUR/CNY climbed 0.11% to 7.6210, from an opening of 7.6115.

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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