MNI China Press Digest May 16: PBOC, Liquidity Risk, Yuan

Highlights from Chinese press reports on Tuesday:

• China’s CPI will remain low in May and June due to the high-base effects of last year, according to the recently released People’s Bank of China’s Q1 policy report. However, the economy will record faster consumer price increases later in the year, when policy measures take effect and the gap between supply and demand closes, the central bank said. The report also noted China should maintain a prudent monetary policy to avoid high inflation and banking instability experienced by developed countries. The PBOC said the economy does not face deflation risk, as M2, social financing and growth are expanding. Authorities will prioritise supervising the SME banking sector to mitigate risks, the report said. (Source: 21st Century Herald)
• Regulators should monitor financial risks posed by real estate and local financing platforms that may be exposed to liquidity shortages, according to a report released by China Orient Asset Management. Wang Zhanfeng, secretary of the party committee and chairman at China Orient, said policy measures were needed to accelerate reforms of SME banks to develop corporate governance and broaden capital replenishment channels. Economists believed non-performing assets were still an issue, with 86% saying the full extent of the problem was not yet fully exposed. SME banks will continue to face risks in 2023, with 39.6% of respondents saying risk will increase, and 4.1% seeing a fall. (Source 21st Century Herald)
• The yuan is expected to remain stable this year, as spill over from developed nations' monetary tightening eases and economic fundamentals improve, according to Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange. Speaking at a recent press conference, Wang said independent market actors determined the current FX rate and supply, and demand was balanced. China’s capital account remained stable and orderly, as foreign investors were increasingly attracted to CNY assets, which helped stabilise the FX market, he said.