MNI China Daily Summary: Friday, April 22

EXCLUSIVE: The yuan is set to weaken against the dollar for the rest of the year, falling as low as 6.8 to the greenback, as exports soften and U.S. Treasury yields reduce the relative attractiveness of Chinese assets, foreign exchange traders and policy advisors told MNI.

EXCLUSIVE: Relaxing controls on China’s faltering property market will be key if the country is to meet its annual growth target, as external demand weakens and a Covid lockdown hits activity in major centres including Shanghai, policy advisors and analysts told MNI, calling for more big cities to lower mortgage downpayments and interest rates.

POLICY: China's monetary policy priority is ensuring stable consumer prices given the rising global uncertainties and geopolitics that further added inflationary pressure, said People's Bank of China (PBOC) Governor Yi Gang at the Boao Forum. China's financial services will therefore highly prioritize supporting agricultural production and the production and imports of energy, so as to help maintain grain production and energy supply while keeping prices in a reasonable range, Yi said.

POLICY: China’s forex market is becoming more resilient with the foundation and conditions to adjust to the current round of policy changes by the U.S. Federal Reserve, Wang Chunying, the deputy head of the State Administration of Foreign Exchange said. On concerns of recent capital outflow and yuan depreciation, Wang said as the market digests short-term factors, institutional investors will return to China's securities for the long term.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 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 1.5401% from the close of 1.7018% on Thursday, Wind Information showed. The overnight repo average fell to 1.2580% from the previous 1.2891%.

YUAN: The currency weakened to 6.4875 against the dollar from 6.4500 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.4596, compared with 6.4098 set on Thursday, marking the biggest daily drop since March 9, 2021.

BONDS: The yield on the 10-year China Government Bond was last at 2.8650%, up from 2.8500% of Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.23% to 3,086.92, while the CSI300 gained 0.44% to 4,013.25. The Hong Kong's Hang Seng Index lost 0.21% to 20,638.52.

FROM THE PRESS: The net inflow of foreign capital into China will still be considerable in 2022, as China’s economy is resilient to withstand shocks and the country is resolute to keep expanding high-level opening up, Xinhua News Agency reported citing Fang Xinghai, vice chairman of the China Securities Regulatory Commission. Fang said it takes time for foreign investors to get familiar with the Chinese capital market, and they will return after new policies created uncertainties, Xinhua reported. From 2019 to 2021, a net of CNY887.4 billion of foreign capital has flowed into the A-share market, with foreign capital currently accounting for about 4.5%, Xinhua said.

Many overseas investment institutions believe the yuan is unlikely to fall sharply as far as China keeps stable growth and balanced cross-border capital flow, and the recent weakening of yuan is more likely a correction of the previous high valuation, the 21st Century Business Herald reported citing an unnamed trader in Hong Kong. The correction of yuan can moderately release the accumulated depreciation pressure and a more flexible currency will help to stabilize growth and maintain a high level of safety and yield prospects for yuan assets, the newspaper said. Onshore yuan traded around 6.4472 against the U.S. dollar on Thursday, hitting an intra-day high of 6.4518, the weakest since November 2021.

Shanghai will carry out nine major measures from Friday aiming to achieve zero community transmission of Covid-19 sooner, according to a statement on the municipal government’s WeChat account. Residents in locked-down areas are banned to leave their home, while those in controlled areas are not allowed to leave their residential complex, and gathering is strictly prohibited in the rest of the city. Intensive COVID-19 and antigen tests will be carried out in different areas, the statement said.