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MNI China Daily Summary: Monday, November 28
EXCLUSIVE: China’s retail sales could grow 5-6% in 2023 as Covid controls are eased, though renewed outbreaks in some of the country’s largest cities could delay reopening and weigh on Q4 sales, advisers told MNI.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY55 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net injection of CNY52 billion after offsetting the maturity of CNY3 billion reverse repos today, according to Wind Information. 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) rose to 1.8366% from 1.7323% on Friday, Wind Information showed. The overnight repo average increased to 1.0284% from the previous 1.0247%.
YUAN: The currency weakened to 7.1999 against the dollar from 7.1615 on Friday. The PBOC set the dollar-yuan central parity rate higher at 7.1617, compared with 7.1339 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.8650%, up from Friday's close of 2.8400%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 0.75% to 3,078.55, while the CSI300 index fell 1.13% to 3,733.24. The Hang Seng Index lost 1.57% to 17,297.94.
FROM THE PRESS: The benchmark Loan Prime Rate has room to be lowered following the People’s Bank of China’s 25bp cut to banks’ reserve requirement ratio last Friday, Caixin reported citing Sheng Songcheng, former director of the surveys and statistics department at PBOC. The PBOC said in its Q3 monetary policy report that it would promote lower costs of corporate financing and individual borrowing for consumption, which indicated a lower LPR, said Sheng. The relatively small cut to RRR aimed to boost inter-bank liquidity to support sales of government bonds, and to increase banks’ support for real estate developers, Sheng was cited as saying. China’s real estate sector will see a soft landing, though it will take time, Sheng added.China should pursue expansionary fiscal and monetary policy to determine the optimum economic growth rate, which may be much higher than the current target of 5.5%, Yicai.com reported citing Yu Yongding, member of the Chinese Academy of Social Sciences and former member of the People's Bank of China monetary policy committee. Yu said risks posed by inflation and too much leverage should not be a constraint on pro-growth policies given China’s high savings rate and current account surplus. He favours continued investment in infrastructure as this boosts migrant workers' income growth, which boosts consumption. Given low private sector sentiment and a liquidity trap, the government needs to rely on fiscal policy to take the lead.
China should set next year’s budget deficit-to-GDP ratio higher than 3%, up from 2.8% this year, to plug the fiscal gap between revenues and expenditures, Yicai.com reported citing analysts. A 3.5% rate could provide CNY4.5 trillion of funds but an additional CNY2 trillion would be required, which could be sourced from SOEs profits to fill the estimated CNY6.4 trillion fiscal gap in 2023, the newspaper said citing Luo Zhiheng, chief economist of Yuekai Securities. Gao Ruidong, chief macro economist at Everbright Securities, said the rate should be raised to 3.1%, as local governments facing high debt burdens have limited room to add leverage, which would require the central government to be the main provider of additional leverage next year, Yicai said.
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