MNI China Daily Summary: Monday, February 8

EXCLUSIVE: Recent statements by the U.S. on its stance towards China have tempered optimism among Beijing advisors, who now expect calls for more domestic reform to precede discussions on trade and a revival of the unfinished bilateral investment proposal as a replacement for the phase two trade deal.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY110 billion via 7-day reverse repos with the rate unchanged on Monday. This resulted in a net injection of CNY10 billion after the maturity of CNY100 billion reverse repos today, according to Wind Information. The operation aims to maintain stable liquidity before the Chinese New Year holiday, as residents' demand for cash withdrawals before the holiday this year was significantly lower than in previous years, and fiscal expenditures before the holiday largely increased, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.3461% from the 2.3518% on Sunday, Wind Information showed. The overnight repo average rose to 1.8941% from the previous 1.5252%.

YUAN: The currency strengthened to 6.4583 against the dollar from 6.4810 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.4678 today. This compares with the 6.4710 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 3.2850%, up from Sunday's 3.2650%, according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 1.03% to 3,532.45 while the CSI300 index gained 1.48% to 5,564.56. Hang Seng Index edged up 0.11% to 29,319.47.

FROM THE PRESS: The People's Bank of China is likely to maintain ample liquidity during the Chinse New Year beginning this week as fiscal spending and liquidity controls ease, the China Securities Journal wrote in a commentary. Interbank liquidity conditions should also improve as pre-holiday injections mature, the newspaper wrote. The PBOC is likely to refrain from raising OMO rates in H1 to support the credit bond market after nearly CNY50 billion in planned issuances of credit bonds were canceled, wrote the newspaper. Short-term market rates may still rise due to rising asset prices, the weakening dollar and higher consumer demand, the Journal said.

China's foreign exchange reserves are likely to rise given the weakening U.S. dollar index and a stronger yuan, the Securities Times reported citing Zheng Houcheng, head of research at Yingda Securities. The dollar index may weaken given the Federal Reserve's low-rate policies and record high U.S. trade and fiscal deficits, while China-U.S. interest rate spreads and China's robust trade surplus favor the yuan, Zheng was cited saying. China's FX reserves stood at USD3.21 trillion at the end-Jan, down USD5.9 billion from end-Dec, the newspaper said.

China and the U.S. can form better relations if the U.S. wants to pursue common interests, deepen economic and trade cooperation despite tough rhetoric, the China Daily said in an editorial following a phone call between the two nations' top diplomats. The official newspaper noted that President Biden had said he would work with Beijing when it is in the U.S. interest, a marked difference from the Trump administration's "maximum pressure" approach, the Daily said. This is notable despite Secretary of the State Anthony Blinken signaling the administration would continue its predecessor's policies of "stirring up trouble" in China's regions, including Xinjiang and Hong Kong, the Daily said.