USD/CNH blips lower on the back of a BBG sources report which suggested that “China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the government’s annual growth target.”

• Still, the move in USD/CNH was shallow and the pair didn’t get anywhere near challenging session lows before stabilising/recovering. USD/CNH last ~CNH7.29, sticking comfortably within the well-defined technical parameters we have referenced in recent times.
• We flag a couple of areas of interest to explain the limited move in CNH:
• Firstly, deeper stimulus is already expected, so that part of the story won’t have presented much of a surprise. Also, most believe that the Chinese economy has already bottomed, with a couple of large sell-side names revising their GDP ’23 forecast up to a government target meeting 5% in recent weeks.
• Secondly, the official deficit excludes the likes of LGFV debt and special bonds, making the number a little redundant when it comes to assessing the total fiscal burden, particularly at the local government level. The piece suggested that China could look to shift the (short-term) burden of infrastructure-related debt/growth away from local governments via issuing general purpose bonds. Debt swaps are already under way for some of the more burdened local governments, and the move outlined in BBG article could signal further worry re: local government finances.