Chinese Yuan Finding Direction on Record Household Debt, Stalling Manufacturing Growth

The Chinese yuan is struggling to find direction midweek after new data questioned if the world’s second-largest economy is healthy enough to sustain its trade war with the US. Manufacturing growth stalled in September, household debt surged to a record high in 2017, and the government showed that it is willing to slash its import tariffs in the global trade dispute.

After 15 months of expansion, Chinese factory sector growth stalled last month as export orders declined at the fastest pace in more than two years. Manufacturing growth also weakened in September amid softening domestic and export demand.
The September Caixin/Markit Manufacturing Purchasing Mangers’ Index (PMI) slipped to 50.0 from 50.6 in August. The Purchasing Managers’ Index (PMI), maintained by the National Bureau of Statistics, tumbled to 50.8 in September, from 51.3 in August, the lowest it has been in seven months.
Debt, which has plagued the federal government in recent years, is affecting households as well. In 2017, household debt soared to a record high, led by a dramatic increase in mortgages and peer-to-peer (P2P) lending. While the People’s Bank of China (PBOC) does not have any intentions to raise interest rates anytime soon, the concerns regarding debt-servicing might give the central bank further pause.
In a move that might signal it is willing to make concessions on trade, the Ministry of Finance confirmed on Sunday that it will slash import tariffs on textile products and metals from 11.5% to 8.4% as of November 1. It also aims to cut import tariffs on paper, minerals, gemstones and wood from 6.6% to 5.4%. Overall, average import tariffs on more than 1,500 products will be reduced from 10.5% to 7.8%.
Because of heightened tensions with Washington, Beijing wants to improve relations with some of its biggest trading partners, so it has vowed to increase imports this year.

Reducing tariffs is conducive to promoting the balanced development of foreign trade and promoting a higher level of opening up to the outside world.

At the same time, the ministry announced that it plans to sell $3 billion in US dollar bonds in October. Under the initiative, Beijing will sell bonds that mature in five, 10, and 30 years.
The USD/CNY currency pair dipped 0.2% to 6.8679, from an opening of 6.8689, at 13:16 GMT on Wednesday. The EUR/CNY dropped 0.28% to 7.9236, from an opening of 7.9442.

If you have any questions, comments or opinions regarding the Chinese Yuan,
feel free to post them using the commentary form below.

Leave a Reply

Your email address will not be published. Required fields are marked *