MNI China Daily Summary: Friday, October 27

EXCLUSIVE: China wants eventually to develop its Belt and Road Initiative into a common market, with shared external tariffs, starting with framework treaties to open up trade further in a similar pattern to that followed by ASEAN, a leading Chinese international affairs expert told MNI.

POLICY: China and the U.S. had a “professional, pragmatic, candid and constructive” communication at the first meeting of a new financial working group on Wednesday, where currency and financial stability, supervision, and regulation were discussed, the People’s Bank of China (PBOC) said in a statement.

POLICY: Former Chinese Premier Li Keqiang has died at the age of 68, China Xinhua News Agency has reported.

LIQUIDITY: The PBOC conducted CNY499 billion via 7-day reverse repo on Friday, with the rate unchanged at 1.80%. The operation has led to a net drain of CNY329 billion after offsetting the maturity of CNY828 billion reverse repos today, according to Wind Information.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.0897% from 2.1278%, Wind Information showed. The overnight repo average decreased to 1.5927% from the previous 1.6338%.

YUAN: The currency strengthened to 7.3166 against the dollar from 7.3182 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 7.1782, compared with 7.1784 set on Thursday. The fixing was estimated at 7.3111 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.7275%, down from 2.7290% at Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.99% to 3,017.78 while the CSI300 index rose 1.37% to 3,562.39. The Hang Seng Index was up 2.08% to 17,398.73.

FROM THE PRESS: The PBOC will likely cut the reserve requirement ratio in Q4 to create a suitable liquidity environment for government bond issuance. Net government bond financing in Q4 will increase by about CNY1.5 trillion compared to the same period last year, after Beijing announced plans to issue an additional CNY1 trillion in treasury bonds this week. Meanwhile, the maturity of a total CNY1.5 trillion of medium-term lending facilities in November and December also increases the possibility of a RRR cut in Q4, said Ming Ming, chief economist at CITIC Securities. (Source: China Securities Journal)

The issuance of local government bonds reached CNY8.2 trillion as of October 25, breaking through the CNY8 trillion mark for the first time. Annual issuance will likely exceed CNY8.5 trillion as local authorities issue more special refinancing bonds. The borrowers began to issue special refinancing bonds in October, which have reached CNY840 billion as of Wednesday, to swap out high-interest off-balance-sheet debts and repay arrears. The balance of local government statutory debt is close to CNY40 trillion, with the debt ratio exceeding the warning level. The overall local debt risk is controllable but the repayment pressure in some regions is prominent, said an unnamed source close to the regulatory authority. (Source: 21st Century Business Herald)

China’s economic high frequency data has shown recent improvement with the market expecting a stronger recovery in Q4 following the government's recent announcement of new treasury bonds, according to the 21st Century Herald. The news agency noted passenger car market retail sales increased 19% y/y during Oct 1 to Oct 22, up 8% from the same period last month. The Yiwu Small Commodity Price Index increased 0.7% to 102.1 points, a y/y improvement. Agricultural product prices fell with the wholesale price of pork down 2.7% during the week of Oct 22 to CNY20.97/kg. Domestic Shanghai Containerised Freight Index rose 2.9% w/w to 917.7 points.