MNI China Press Digest Oct 22: Yuan, Liquidity, Transfers

The following lists highlights from Chinese press reports on Thursday:

The yuan is unlikely to appreciate from the current level of around 6.64 to the dollar but will become more volatile due to both bullish and bearish factors including China's faster economic recovery, changes in its foreign exchange policies, the global management of the pandemic, and uncertainties around the U.S. election, the Shanghai Securities News reported. Citing commentators including Guan Tao, an economist from BOC International, the report said that the currency's short-term surge may lead to asset bubbles and put exports under pressure. While short-term factors support the yuan, long-term conditions for a stronger yuan haven't taken shape, the newspaper said citing economist Lian Ping of Zhixin Investment.

China may be forced to tighten monetary policies next year amid increasing liquidity resulting from the expanding balance of payments surplus, Yicai reported in an article written by Zhang Yi, an economist from ZhongHaiShengRong Capital Management, and Zhang Jianyuan, an economist from China Securities Co. The increasing surplus may force the PBOC to add about CNY2.5 trillion in base money from Q4 to Q1 of next year, leading to excess liquidity, wrote the authors. The expected growth of government revenue will likely reduce next year's deficit to less than 3% of the GDP, and thus eliminate the issuance of special treasury bonds for the pandemic, wrote the authors. Limitations on land-related projects are likely to suppress the issuance of special bonds for next year since there are still CNY1.6 trillion of special bonds not yet factored into GDP, the authors wrote.

China will improve the transfer of fiscal funding to local governments to ensure this year's growth targets are achieved and that macro policies are consistently carried out, according to a statement following the weekly State Council meeting chaired by Premier Li Keqiang. China will further expand the use of direct funding to cover people's livelihood such as teachers' salaries and ensure operations at the grassroots level, according to the statement. As of Sept. 30, governments at county levels had received CNY1.57 trillion out of CNY1.7 trillion allocated, which was used to support employment, small businesses and to alleviate poverty, the government said.