MNI China Press Digest Jan 28: Stable Yuan, PBOC, More Deficit

The following lists highlights from Chinese press reports on Thursday:

• The Chinese yuan is unlikely to depreciate sharply, as it is supported by China’s positive economic prospects, increased foreign holdings of yuan assets and controllable capital outflow risks, the China Securities Journal reported citing analysts. On Thursday, the onshore yuan fell the most in 10 months when it lost 426 basis points from the previous close to 6.3645 against the U.S. dollar, on a day when the dollar index rose to an 18-month high of over 97, the newspaper said. A moderate depreciation of the yuan enhances the currency’s flexibility and helps stabilize the economy by giving more space for monetary policy, the newspaper said citing Wen Bin, the chief researcher at Minsheng Bank.
• The People’s Bank of China aims to keep the yuan basically stable at a balanced level, and while the currency may deviate in the short term, market forces and policy factors will correct the deviation in the medium and long term, wrote Deputy Governor Sun Guofeng in the PBOC-run China Finance magazine. The central bank will use various monetary policy tools to smoothen short-term fluctuations in liquidity timely and appropriately, and guide financial institutions to vigorously boost credit supply, Sun said. It will increase targeted efforts, such as further increasing the relending quota to boost credit support for agriculture, rural areas and small and micro enterprises, wrote Sun.
• China may expand budget deficit in 2022 to boost spending, while keeping deficit-to-GDP ratio similar to or lower than last year's target, set at 3.2% in March 2021, the China Securities Journal reported citing analysts. This year's deficit may reach CNY3.93 trillion, CNY360 billion more than in 2021, the newspaper said citing Zhong Zhengsheng, the chief economist at Ping An Securities. China may allow CNY3.65 trillion local government special bonds to be issued, matching last year's level, and will mainly spend them on new-energy and technology infrastructure, while giving more tax and fee cuts to manufacturing and small businesses, the newspaper said.