MNI China Daily Summary: Friday, February 3

POLICY: China will fully reopen its border with Hong Kong and Macau next Monday, and will drop quotas and scrap a COVID-19 test that was required before travelling, said the State Council’s Hong Kong and Macau Affairs Office in a statement on Friday.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY23 billion of operations via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY296 billion after offsetting the maturity of CNY319 billion in reverse repos. The central bank drained a total of CNY720 billion of liquidity for the whole week from the interbank market.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) edged down to 1.8521% from 1.9107% on Friday, Wind Information showed. The overnight repo average fell to 1.3435% from the previous 1.5943%.

YUAN: The currency closed at 6.7465 against the dollar at 16:30pm Beijing time from 6.7221 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.7382, compared with 6.7130 set on Thursday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8925%, down from Thursday's close of 2.9380%.

STOCKS: The Shanghai Composite Index fell 0.68% to 3263.41, while the CSI300 index was down 0.95% to 4141.63. The Hang Seng Index was down 1.36% to 21660.47.

FROM THE PRESS: Chinese securities regulator pledged to enhance inclusiveness of stock and bond financing for tech companies and promote mergers and acquisitions, according to a meeting held by the China Securities Regulatory Commission (CSRC) to outline major works in 2023. While pushing the official launch of a registration-based IPO system, the watchdog will introduce more practical measures in key areas and weak links such as serving the private economy, promoting the stable and healthy development of real estate, and supporting internet platforms. It will improve the quality of listed companies, and guide more medium and long-term funds into the market. It will prevent and defuse major financial risks in private equity funds and bond defaults.

Chinese banks are expected to accelerate initial public offerings (IPO) as strict controls on listings of financial institutions will be eased after the launch of a registration-based IPO system, 21st Century Business Herald reported Friday citing analysts. Lenders, particularly small ones, will have a chance to replenish capital, improve balance sheets and enhance their capacity to provide loans by listing, analysts said, pointing out that only 42 banks have been listed among 5079 firms on the A-share market. The new system will also benefit the stock value of securities brokers as listings, delistings and market trading will increase.

Foreign capital inflows into China's A-share market are likely to sustain the rally in the yuan as market sentiment is boosted by the recovery of the economy, China Securities Journal reported. Amid a robust economic recovery, conversion of foreign exchange deposits is increasing and capital outflows from the bond market have slowed as the China-US interest spread narrows. The weaker U.S. dollar and capital inflows have lifted the the yuan against the dollar so far this year, and the yuan's daily fixing set by the central bank is approaching the strongest in 6 months. The currency is expected to strengthen this year even though there will be periods of two-way volatility.