MNI China Daily Summary: Friday, October 28

EXCLUSIVE: China’s 2022 growth could slow to under 4% and miss the government’s target of “around” 5.5% as new stimulus is unlikely until key leadership roles are filled even as the ailing property market, weak exports and hit to consumer spending from Covid-Zero policies offset increased infrastructure spending, advisors and analysts told MNI.

POLICY: The Chinese yuan will be supported over the long term by a sustained trade surplus and China's strong asset position despite recent short-term weakness, said the China Banking and Insurance Regulatory Commission, according to a report in the Securities Times.

POLICY: Chinese lenders saw continued soft credit demand from the struggling property sector in the third quarter even though reference lending rates have been reduced, according to data issued by the People’s Bank of China (PBOC). The outstanding loans of Chinese banks to the property sector totaled CNY53.29 trillion at the end of September, up 3.2% on an annual basis but weaker than the 7.9% pace at the end of 2021, according to the PBOC.

LIQUIDITY: The PBOC injected CNY90 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net injection of CNY88 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to keep month-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.9658% from 2.0229% on Thursday, Wind Information showed. The overnight repo average fell to 1.3229% from the previous 1.7297%.

YUAN: The currency weakened to 7.2565 against the dollar from 7.2081 on Thursday. The PBOC set the dollar-yuan centrOK. Pubbing it. al parity rate higher at 7.1698, compared with 7.1570 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 2.6670%, down from Thursday's close of 2.7000%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 2.25% to 2,915.93 while the CSI300 index fell 2.47% to 3,541.33. Hang Seng Index tumbled 3.66% to 14,863.06.

FROM THE PRESS: The yuan will continue to fluctuate both ways instead of continuing its recent sharp depreciation as it is supported by China’s pro-growth policies, current account surplus, and sufficient counter-cyclical tools, said the 21st Century Business Herald in a commentary. The growing expectation for a dovish turn by the Federal Reserve and European Central Bank amid increasing fears of recessions could weaken the U.S. Dollar Index and ease some depreciation pressure on yuan against the dollar, the newspaper said. There are plenty of regulatory tools the PBOC can use, such as continuing to lower the foreign exchange deposit reserve ratio and implementing its counter-cyclical factor, to ensure the yuan fluctuates within a reasonable range, the newspaper said.

China will focus on the implementation of pro-growth policies, stabilise employment and prices, and strive to promote better economic performance in Q4 than in Q3, Xinhua News Agency reported citing a State Council executive meeting chaired by Premier Li Keqiang. It is necessary to accelerate construction and funds should be redirected to new projects if construction fails to start on time, the meeting said. The issuance of loans for manufacturers to upgrade equipment should be quickened to expand demand, the meeting said. City-specific policies should support the purchase of first and second homes, the meeting added.

The global status of yuan has steadily improved in terms of receipts and payments, and reserves, and foreign investors have increased their holdings of yuan bonds for the eighth consecutive year, Securities Daily reported citing a report by China Banking Association. To quicken yuan internationalisation, regulators should seek to expand the scale of bilateral currency swaps and promote the unification of policy standards for using domestic and foreign currencies in trade and investment, the report said. Widening the scope of participants in cross-border investment in China's financial markets, more active development of the offshore yuan market, and optimising the offshore yuan clearing system was also recommended.