MNI China Daily Summary: Friday, October 20

EXCLUSIVE: The People’s Bank of China (PBOC) will increase liquidity injections to support bond sales by local governments as they seek to swap off-balance sheet debt and is likely to further reduce reserve requirements this year, economists told MNI, after a benchmark rate was left unchanged.

EXCLUSIVE: Steel production in China’s northeast will stabilise despite the recent dip in prices as future demand from advanced manufacturing and green technology – boosted by green bonds and loans – replaces consumption from property and construction, experts and policymakers told MNI.

POLICY: China's Loan Prime Rate remained unchanged on Friday, according to a PBOC statement, in line with market expectation following the PBOC's decision to keep a key policy rate steady on October 16.

LIQUIDITY: The PBOC conducted CNY828 billion via 7-day reverse repo on Friday, with the rate unchanged at 1.80%. The operation has led to a net injection of CNY733 billion after offsetting the maturity of CNY95 billion reverse repos today, according to Wind Information.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.3108% from 2.0723%, Wind Information showed. The overnight repo average increased to 1.9369% from the previous 1.8727%.

YUAN: The currency strengthened to 7.3150 against the dollar from 7.3153 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 7.1793, compared with 7.1795 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7300%, down from 2.7450% at Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.74% to 2,983.06 while the CSI300 index fell 0.65% to 3,510.59. The Hang Seng Index was down 0.72% to 17,172.13.

FROM THE PRESS: Local governments will likely issue over CNY1 trillion in bonds in Q4, as about CNY400 billion of the special bond quota remains, while authorities may continue to increase issuance of special refinancing bonds to swap out implicit debts. There are 17 provinces that have disclosed their refinancing plans totaling CNY726 billion as of Oct 13, with the scale exceeding market expectations reflecting great capital demand, according to Feng Lin, analyst at Golden Credit Rating. Wind Information shows up to CNY3.5 trillion infrastructure project-backed special bonds were issued as of Oct 19. (Source: Securities Daily)

Authorities should cut interest rates to maintain the strong Q3 recovery momentum into Q4, according to Pang Ming, chief economist at Jones Lang LaSalle Greater China. Despite Q3 GDP growth exceeding expectations, authorities still need to address insufficient demand, Pang added. Additionally, the government should reduce financing costs for firms and households and maintain proactive fiscal policy through advancing special-bond issuance and post-investment funds to strengthen demand. Liu Yuanchun, president of Shanghai University of Finance and Economics, said officials had begun to see the property market stabilise, but the large scale of adjustment means investors need to take a long-term view on the sectors' recovery.

China’s building industry has reduced its proportion of steel demand from 40% of total steel output to 30% in 2023, according to Wang Guoqing, head of the Lange Steel Research Center. Wang said as policymakers promote modern industrialisation, buyers are demanding more industrial grade steel and less construction. China’s proportional demand for high-value-added steel varieties will continue increasing, as the country focuses on boosting consumption in the automotive, consumer goods, cars and home appliances sectors, Wang added. The National Bureau of Statistics announced recently China's crude steel production in September 2023 was 82.11 million tons, down 5.6% y/y but year to date remained up 1.7%. (Source: 21st Century Herald)