As China approaches critical parliamentary meetings, quantifiable economic strategies are on the agenda. While policies to boost domestic demand such as tax reductions and consumption vouchers are likely, weakening the yuan for export competitiveness is not anticipated. This cautious approach addresses concerns over foreign investment and trade relations with the U.S.

China has various strategies at its disposal as it approaches a crucial parliamentary session this week, yet devaluing the yuan to enhance export competitiveness seems unlikely to be among them. The National People’s Congress (NPC) will convene on Wednesday to establish essential economic targets, following the Chinese People’s Political Consultative Conference (CPPCC) meeting on Tuesday.

With a commitment from Beijing to stimulate domestic demand, anticipated measures include income-boosting tax reductions and the issuance of consumption vouchers. To strengthen consumer confidence, additional actions to support property values and the stock market through enhanced assistance for private enterprises may be introduced.

An increase in the government’s budget deficit is forecasted, alongside potential indications of further monetary easing, despite a rise in manufacturing PMIs in February. While it is probable that benchmark interest rates could be reduced again, the authorities are likely to sustain support for the yuan, evident from the People’s Bank of China’s stabilization of the daily USD/CNY benchmark rate around 7.1700.

The central bank has also decreased bank USD deposit rates while intensifying scrutiny over capital outflows. Weakening the yuan to boost exports poses risks, including deterring foreign investors, who have recently shown optimism due to advancements in Chinese AI technology. Moreover, such a move could jeopardize potential trade discussions with the U.S., particularly as President Donald Trump warned against yuan devaluation.

In summary, as China prepares for significant parliamentary meetings, it is unlikely to pursue a weakening of the yuan as a stimulus strategy. Instead, a focus on boosting domestic demand through fiscal measures and continued support for the yuan reflects a cautious economic approach amidst global trade considerations.

Original Source: www.tradingview.com

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