MNI China Daily Summary: Friday, December 23

EXCLUSIVE: The Chinese yuan could rally to 6.5 against the U.S. dollar in the second half of 2023 on capital inflows and a weaker U.S. dollar, though two-way volatility is likely early in the year as an economic recovery navigates rising Covid cases, a senior policy adviser told MNI.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos, and CNY203 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operation led to a net injection of CNY164 billion after offsetting the maturity of CNY41 billion reverse repos today, according to Wind Information. The operations aim to keep year-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.5149% from 1.5345% on Thursday, Wind Information showed. The overnight repo average fell to 0.5474% from the previous 0.7043%.

YUAN: The currency weakened to 6.9870 against the dollar from 6.9793 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.9810, compared with 6.9713 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.8533%, down from Thursday's close of 2.8725%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.28% to 3,045.87 while the CSI300 index was down 0.20% to 3,828.22. The Hang Seng Index was down 0.44% to 19,593.06.

FROM THE PRESS: China’s economy will rebound next year, but the strength of recovery is uncertain said experts at the 4th Bund Finance Summit, co-hosted by the China Finance 40 Forum (CF40). The impact of Covid-19 “scarring” on household and small business finances, as well as continued lack of confidence in the real estate sector were unknown factors impacting next year's growth outlook. Experts said the yuan may face depreciation pressure next year due to a risk of dollar shortages, widening Sino-US interest rate differentials, and service trade deficit expansion. As the economy is in the early stage of bottoming out, fiscal policy should be more vigorous, and monetary policy should be more accommodative to support the recovery.

Debt-laden developer Evergrande said disagreements are narrowing in its offshore debt restructuring plan, though it also admitted great uncertainty on repayment given the company’s massive debts and challenging business situation, Caixin reported. The major disagreement in the restructuring negotiation is that the current size of Evergrande’s overseas debt is out of proportion to its overseas executable assets, and creditors receive limited protection, said Caixin citing an unnamed dollar bond investor. Creditors’ expectations have already been lowered, but they still hope to obtain debt repayment protection from physical division of property, the newspaper said.

Upper tier-2 cities in China have taken steps to increase demand for property purchases, according to Yicai.com. The city of Nanjing has lowered down payment ratios for purchasing two properties to 40%, and in Zhengzhou new citizens will enjoy the same treatment as local residents in terms of credit policy, deed tax subsidy, and house price preferences. The paper said the impact of these measures will be small in the short term, as the recovery of the sector next year is more reliant on the stabilisation of the economy and the return of home buyer confidence.