China's central bank has opted to maintain its benchmark lending rates for the third consecutive month, a move that aligns with market expectations but comes amid growing concerns over the country's economic performance. In separate developments, China is considering allowing yuan-backed stablecoins to boost global currency usage and has filed a complaint with the World Trade Organization (WTO) challenging Canada's trade measures on steel and aluminum products.

Key Points

• The one-year loan prime rate (LPR) remains at 3.00%
• The five-year LPR stays unchanged at 3.50%
• All 23 participants in a Reuters survey correctly predicted no rate changes
• China initiates WTO dispute resolution process against Canada's steel and aluminum trade restrictions
• China considers allowing yuan-backed stablecoins to increase global adoption of its currency

Economic Backdrop

The decision to keep rates steady comes against a backdrop of recent disappointing economic data:

• Factory output growth hit an eight-month low
• Retail sales showed a sharp deceleration
• New yuan loans contracted for the first time in 20 years

Central Bank's Stance

Despite these challenges, the People's Bank of China (PBOC) has indicated a preference for targeted structural policies over broad-based monetary easing. The central bank stated its intention to implement a moderately loose monetary policy while cautioning against funds idling in the banking system.

Supportive Measures

In an effort to bolster the economy, China has announced several targeted measures:

• Interest subsidies for businesses in eight consumer service sectors
• Focus on supporting services consumption
• Consideration of yuan-backed stablecoins to increase global adoption of its currency

Yuan Internationalization Efforts

China is exploring new avenues to increase the global adoption of its currency:

• The State Council will review a roadmap for Chinese currency usage in global markets
• Senior leadership will meet to focus on yuan internationalization and stablecoins
• Hong Kong and Shanghai are expected to be main cities for implementing the plan
• China plans to discuss expanding yuan and stablecoin use for cross-border trade at the Shanghai Cooperation Organisation Summit

Market Implications

The decision to maintain rates suggests that policymakers are treading carefully, balancing the need for economic support with concerns about excessive monetary easing. This approach may indicate a belief that targeted measures could be more effective in addressing specific economic weaknesses without risking broader financial instability.

The potential introduction of yuan-backed stablecoins marks a significant shift from China's 2021 ban on cryptocurrency trading and mining. This move could help increase the yuan's global market share, which currently stands at 2.88% for global payments, compared to the U.S. dollar's 47.19%.

WTO Complaint Against Canada

China has filed a formal complaint with the WTO challenging Canada's taxes and quotas on steel and aluminum products. This action initiates the WTO's formal dispute resolution mechanism, signaling China's intent to contest these trade restrictions through international channels.

Conclusion

As China navigates these economic headwinds and international trade disputes, market participants will be closely watching for any signs of policy shifts, additional targeted interventions, or developments in trade relations in the coming months. The global stablecoin market, currently valued at approximately $247.00 billion and dominated by U.S. dollar-backed stablecoins, could see significant changes if China successfully implements its yuan-backed stablecoin strategy.

China has taken decisive action in response to the European Union's recent sanctions on Chinese firms, escalating tensions in the complex geopolitical landscape surrounding Russia-related issues. Additionally, China has announced plans to conduct final inspections on optical fiber imports from India.

China's Countermeasures

The Chinese Ministry of Commerce has implemented countermeasures targeting two European Union financial institutions. This move comes as a direct response to the EU's 18th sanctions package against Russia, which included measures affecting entities from third countries, including China.

EU Sanctions on Chinese Banks

The EU sanctions specifically targeted two Chinese regional banks:

• Suifenhe Rural Commercial Bank
• Heihe Rural Commercial Bank

These institutions, along with five other companies, were sanctioned for allegedly supporting Russia's military complex. The EU's actions have drawn sharp criticism from Beijing, with Chinese officials urging the EU to reverse its decision and cease actions that harm Chinese interests.

Broader Impact of EU Sanctions

The EU's sanctions package has affected entities beyond China. Notably, Mumbai-based Nayara Energy, partly owned by Russian oil major Rosneft, has also been impacted. As a result, Nayara Energy has undergone a leadership change, with Sergey Denisov replacing Alessandro des Dorides as CEO.

China's Stance

China's response underscores its firm position against what it perceives as unwarranted interference in its economic affairs. The Chinese government has consistently opposed unilateral sanctions and has called for dialogue and diplomacy in resolving international disputes.

Implications for EU-China Relations

This tit-for-tat action raises concerns about the potential deterioration of EU-China relations. As two of the world's largest economies, any escalation in tensions could have far-reaching consequences for global trade and diplomacy.

Final Inspections on Indian Optical Fiber Imports

In a separate development, China has announced that it will perform final checks on optical fiber imports from India. This announcement suggests that regulatory or quality control measures are being implemented for this specific product category in bilateral trade between China and India.

The situation remains fluid, with both sides likely to engage in further diplomatic efforts to resolve the issues. The international community will be closely watching how these developments affect not only EU-China relations but also the broader geopolitical dynamics surrounding Russia and the ongoing sanctions regime, as well as trade relations between China and India.