MNI China Daily Summary: Thursday, February 17

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.10% on Thursday. The operation has led to a net drain of CNY10 billion after offsetting the maturity of CNY20 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.9735% from the close of 2.0296% on Wednesday, Wind Information showed. The overnight repo average fell to 1.8603% from the previous 1.9326%.

YUAN: The currency weakened to 6.3366 against the dollar from 6.3353 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.3321 on Thursday, compared with 6.3463 set on Wednesday. Today's parity is the lowest since Jan 26.

BONDS: The yield on the 10-year China Government Bond was last at 2.7800%, down from 2.7850% of Wednesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index gained 0.06% to 3,468.04, while the CSI300 rose 0.24% to 4,629.16. The Hong Kong's Hang Seng Index edged up 0.30% to 24,792.77.

FROM THE PRESS: The yuan has sufficient strength to allow China to pursue independent monetary easing, the Securities Times reported citing analysts. Even as the Federal Reserve's expected rate hike may weaken the Chinese currency, the depreciation will be manageable, as the current strong yuan matches the economic fundamentals, the newspaper said citing Zhang Yu, chief analyst of Huachuang Securities. The yuan is expected to reach 6.35 against the U.S. dollar by the end of December and 6.1 by 2023 yearend, supported by high current account surplus of about USD380 billion per year and increasing holdings of yuan assets, the newspaper said citing Xiong Yi, chief economist of Deutsche Bank China.

China's low reported inflation has given the People’s Bank of China space to further ease its monetary policy and stimulate economic growth, the Shanghai Securities News reported citing analysts. CPI in January eased to 0.9% y/y, down 0.6 pp from December, while PPI's gain narrowed by 1.2 pp to 9.1%, official stats on Wednesday showed. The PBOC may consider an RRR cut to ensure ample liquidity, as the total amount of infrastructure-back special bonds may increase significantly from last year, requiring better credit and social financing support, the newspaper said citing Lian Ping, the chief economist of Zhixin Investment Research Institute. The PBOC may be constrained once the U.S. starts its rate hikes, but is expected to keep market interest rate level stable by using short-term money market tools, the newspaper cited Lian as saying.

China’s overall debt-to-GDP ratio may increase in the next few years as the government borrows to stimulate the economy while GDP growth fails to keep pace, Yicai.com reported citing a report by the Chinese Academy of Social Sciences. The so-called leverage ratio may rise to 268% in 2022 from the current 263.1%, the report said. The leverage ratio of Chinese residents has risen the fastest among the sectors, from less than 5% in 2000 to the current 62.2%, which has surpassed Germany and is closer to that of Japan, said the report. It warned that excessive debt held by the U.S. household sector had led to the 2008 financial crisis.