MNI China Daily Summary: Monday, December 12

EXCLUSIVE: China’s inflation may edge higher after April but will remain tame in 2023, giving policymakers leeway to provide additional support to an economic recovery and ward off deflationary pressures, policy advisers and economists told MNI.

DATA: China's M2 money supply growth rebounded to 6 1/2-year high of 12.4% y/y in November, up from 11.8% y/y in October and beating expectations for 11.7% growth thanks to a significant increase in yuan deposits, the People's Bank of China (PBOC) data showed. New loans doubled to CNY1.21 trillion from October's CNY615.2 billion, slightly lower than the forecast for CNY1.38 trillion, as demand picked up. Aggregate financing grew to CNY1.99 trillion from October's CNY907.9 billion, almost matching expectations for CNY2.1 trillion.

POLICY: Chinese authorities will unveil fiscal and financial tools at a timely pace to mobilise private funds to invest in carbon emission reduction projects, said Xuan Changneng, deputy governor of the PBOC, at the Bund Summit in Shanghai sponsored by the China Finance 40 Forum on Saturday.

POLICY: The issuance of green government bonds will be an important joint effort by fiscal and financial policymakers to push the low-carbon transition of China's economy, said Wang Xin, director of the PBOC research bureau, at the Bund Summit.

LIQUIDITY: The PBOC injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.0%. This keeps the liquidity unchanged after offsetting the maturity of CNY2 billion repos today. 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) fell to 1.5776% from 1.7293% on Friday, Wind Information showed. The overnight repo average decreased to 1.0444% from the previous 1.0591%.

YUAN: The currency weakened to 6.9757 against the dollar from 6.9480 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.9565, compared with 6.9588 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.9150%, down from Friday's close of 2.9175%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.87% to 3,179.04, while the CSI300 index lost 1.12% to 3,953.44. The Hang Seng Index fell 2.20% to 19,463.63.

FROM THE PRESS: China’s 2023 GDP growth target should be above 6% , according to Jia Kang, former director of the Institute of Fiscal Science of the Ministry of Finance. As reported by the 21st Century Business Herald, Jia believes 2022 growth will be around 3%, which sets a low base for next year's target. Jia says the central government should maintain a proactive fiscal policy with the deficit rate exceeding 3% in 2023, and manage the relationship between investment and consumption, whilst boosting private sector confidence. He believes in the short run the resumption of work following the lifting of covid-restrictions should be well managed, and in the long run China's urbanization development potential is a long term engine for economic growth.

The recent issue of CNY750 billion in special treasury bonds by the Ministry of Finance was mainly to replace maturing bonds this month, but also boosts the link between fiscal and monetary policy for next year, according to the Securities Daily. The paper said given the current low level of interest rates, the issuance supports counter-cyclical fiscal investment and lessens public deficit pressure. It also plays an important role in boosting the economy next year, showing the Ministry of Finance is "implementing a proactive fiscal policy" put forward by the recent Political Bureau Meeting of the CPC Central Committee.

Despite November CPI rising 1.6% year-on-year, down 0.5pp from the previous month, experts believe overall 2022 CPI will be around 2%, according to the Securities Daily. The paper notes November’s deceleration in price increases was down to seasonal factors such as a slowing in pork price increases and a high comparison base in the same period last year. The paper notes core CPI, which better reflects the overall price level, has been low for three consecutive months, indicating overall prices are stable and that demand is still in the weak, which provides more policy space for promoting consumption.