MNI China Press Digest Jan 6:Yuan Rally, Money Policy, Deficit

The following lists highlights from Chinese press reports on Wednesday:

The strengthening of the yuan may continue into H2 given the weakening dollar index and as China scales back lending, the PBOC owned Financial News reported citing CIB Research. China recent reduction in the dollar's weighting in the China Foreign Exchange Trade System (CFETS) currency basket is intended to reduce the influence of one single currency, the newspaper said citing Ming Ming, the deputy director of CITIC Securities Research Institute. China should beware of inflation as a strong yuan leads to higher asset valuations, the newspaper reported citing Qu Qiang, a researcher from the Renmin University.

China should avoid tightening its monetary policies in the short term as investment growth and consumption expansion are too slow to sustain the recovery, the Economic Information Daily, run by the official Xinhua News Agency, said in a commentary. Tightening too soon may increase the cost of corporate financing and burden businesses with credit risks, wrote the newspaper. Letting the yuan rise too quickly and by too much could also weaken the competitiveness of exporters, the newspaper commented.

China will keep the fiscal deficit ratio and the scale of local government debts at rational levels this year, Minister of Finance Liu Kun said in an interview with the People's Daily. Liu's comments suggest the government may not continue last year's approach, which included setting the fiscal deficit/GDP ratio above 3.6% and selling CNY1 trillion in special bonds. China will also ensure the macro-leverage ratio stays stable in 2021 and will continue its efforts to rein in illegal debt raisings by local governments, Liu said.