Second wave fears notwithstanding, coronavirus talk will take a backseat at China’s National People’s Congress (NPC) starting this Friday in Beijing. Emphasis, front and center, will be on rapid restoration of economic growth and job market recovery.

There has been talk that the annual GDP growth target will be abandoned for this year or be abolished altogether. I doubt it. Target revision is necessary. But other than that, the government will want to demonstrate to the world and to the Chinese people that it is confident in its ability to overcome the massive dislocations of the corona crisis and to meet even an ambitious growth target.

That, of course, calls for further and significantly expanded fiscal and monetary stimulus and overall credit expansion.

While most of the world’s major economies have reached the zero interest rate or below, China can cut rates substantially from the current Loan Prime Rate of 3.85% for 1-year and 4.65% for the 5-year level.

Another key policy measure would be to defer and roll over 1.5 trillion yuan (US$211 billion) in loan repayments by small and medium enterprises in immediate danger of default. The deadline for that is June 30. There can be little doubt it will be enacted. Note that it’s the SMEs that create most of China’s jobs and losing their job creation impact when not only the current unemployed, but also millions of new graduates are looking for jobs, would be a disaster.

On the fiscal policy front, tax relief across the board is on the cards along with already decided massive new infrastructure spending.

From the FX standpoint, it all adds up to large downward pressure on the yuan. But at least for now, the government won’t mind. A lower yuan is good for exports and in combating deflation.

We may be witnessing that policy attitude in the PBoC’s setting of morning parity. Much like yesterday, the yuan rate was set at a weak level of 7.0912. Later in the day, the currency lost further ground to trade at 7.1082 at 6pm HK time while CNH (offshore CNY) stood at 7.1221.

Benign neglect of PBoC-valued oft-repeated yuan “stability” is, for now, likely to continue … as long as it does not lead to a more general sell-off.

The US dollar weakened overnight and during the Asia trading day – trading at 99.3100 on the DXY at 6pm – as strong equity performance in the US and Asia limited USD demand. EU stocks are down and so are US stock futures. The dollar will benefit.

The government work report will normally set goals for key economic indicators, including jobs, inflation and fiscal deficit, and employment is expected to consistently top the agenda. Given the challenges ahead in 2020, a stable job market will be a linchpin of enhancing macro-control to keep sound economic fundamentals.

Recent official data showed China’s job market remained generally stable yet still under pressure in April, with the surveyed unemployment rate in urban areas standing at 6%, above the 2019 target of around 5.5%.

Meanwhile, Nasdaq is set to unveil new rules for initial public offerings including tougher accounting standards that will make it more difficult for some Chinese companies to list on the exchange.

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