MNI China Daily Summary: Monday, December 19

EXCLUSIVE: Banks may be reluctant to offer lower quotes on the five-year Loan Prime Rate (LPR) due to a rise in wholesale funding costs, despite concerted efforts by China’s government to stabilise the troubled property sector, advisers and analysts said.

POLICY: China's policy banks should support indebted local governments to clear up off-budget lending and convert debt raised for public projects into on-balance sheet debt, a senior policy advisor suggested in the 2022 Jingshan Report issued by China Finance 40 Forum on Saturday.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY9 billion via 7-day reverse repos, and CNY76 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operation led to a net injection of CNY83 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operations aim to keep year-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.7772% from 1.7325% on Friday, Wind Information showed. The overnight repo average decreased to 1.1988% from the previous 1.2138%.

YUAN: The currency weakened to 6.9747 against the dollar from 6.9716 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.9746, compared with 6.9791 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.8875%, down from Friday's close of 2.9050%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 1.92% to 3,107.12, while the CSI300 index lost 1.54% to 3,893.22. The Hang Seng Index edged down 0.50% to 19,352.81.

FROM THE PRESS: China’s economic rebound next year depends on a recovery in aggregate demand, according to Zhu Min, former Deputy Managing Director at the International Monetary Fund. Zhu said policy should focus on restoring household consumption on second homes, vehicles, and elderly care services. Income subsidies and consumption coupons should be issued to specific resident groups as a way to expand demand, he said. Market access should be expanded to attract foreign direct investment, and China’s core-competitiveness in manufacturing should be maintained to support exports. He said the government should coordinate R&D, procurement and financing to support large scale low carbon investment. Zhu’s comments were reported in the Securities Times.

The intensity of monetary policy next year should be no less than this year’s, with sufficient liquidity to meet the needs of the real economy and maintain stable prices for funds, the Securities Times reported citing Liu Guoqiang, deputy governor of the PBOC. If necessary, the central government could increase monetary policy support in a timely manner, unless economic growth and inflation exceed expectations, Liu was cited as saying. Financial support to the real estate sector should be increased, as it is urgent to stop falling prices in this pillar industry, Liu added.

Defusing real estate market risk and boosting domestic demand are the top priorities following the Central Economic Work Conference (CEWC), according to Han Wenxiu, the Deputy Director of Central Financial and Economic Commission. The CEWC said the foundation for economic recovery remains uncertain, and that policy next year should focus on expanding demand, upgrading to a modern industrial system, supporting SOE and private firms, attracting foreign capital, and preventing major economic and financial risks. Han said the easing of Covid restrictions will lead to a "J-curve effect", with short term disruptions followed by sustained recovery into next year.