MNI China Daily Summary: Monday, October 31

POLICY: The People’s Bank of China (PBOC) will enhance efforts to stabilise credit expansion and push lenders to lower real interest rates in a bid to support the economy, Governor Yi Gang said in a report submitted to the National People’s Congress. The central bank will keep liquidity ample and strengthen credit support to the real economy, while it will further reduce the cost of financing for companies and assist household consumption, according to the report released on the PBOC’s website on Sunday.

POLICY: The PBOC will strengthen its international collaboration on digital currency cross border transactions, PBOC Governor Yi Gang told attendees at a Hong Kong Fintech Week event. "A Central Bank Digital Currency (CBDC) can improve the efficiency of cross-border payments and lower costs” Yi said, adding it could also “help consolidate Hong Kong's status as an international financial centre”.

DATA: China's Purchasing Managers' Index (PMI) slid to 49.2 in October from 50.1 in September, falling back to the contractionary zone below 50 after a brief rebound due to sporadic outbreaks of Covid-19 across the country, data from the National Bureau of Statistics showed. The non-manufacturing PMI dropped by 1.9 points to 48.7, falling below 50 for the first time since May when major cities like Shanghai gradually emerged from Covid lockdowns.

LIQUIDITY: The PBOC injected CNY70 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net injection of CNY68 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) fell to 1.9442% from 1.9658% on Friday, Wind Information showed. The overnight repo average increased to 1.7633% from the previous 1.3229%.

YUAN: The currency weakened to 7.2985 against the dollar from 7.2565 on Friday. The PBOC set the dollar-yuan central parity rate higher at 7.1768, compared with 7.1698 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.6430%, down from Friday's close of 2.6650%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.77% to 2,893.48, while the CSI300 index lost 0.92% to 3,508.70. The Hang Seng Index tumbled 1.18% to 14,687.02.

FROM THE PRESS: The PBOC should focus on reviving the economy to support the yuan rather than simply intervening or using its counter-cyclical factor unless speculative factors are driving the market, the Securities Times reported, citing Zhang Bin, deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. China should use proactive fiscal and monetary policies to support the economy, as interest rate cuts would not counter efforts to stabilise the yuan, Zhang was cited as saying. It is also necessary to further improve the level of opening up to strengthen investor confidence, the newspaper said.

China should increase counter-cyclical policies and cross-cyclical polices - which link short and long-term growth - through the rest of this year and into next year to consolidate the momentum of economic recovery, wrote Guan Tao, a former foreign exchange official and now chief economist of BOC International in an article published by Yicai.com. China should strengthen prudent monetary policy, which not only includes cuts to reserve requirement ratio and interest rates, but further streamlining of the policy transmission mechanism to promote lower financing costs for the real economy, as well as the use of structural tools to strengthen support for industries affected by the epidemic, said Guan.

China should introduce a number of targeted policies to support the development of the platform economy and innovative enterprises, as the platform economy requires new measures to revive growth after the government's recent round of reforms, Yicai.com reported citing analysts. Platform companies are an important driver of economic recovery as online transactions proved to be less affected by the Covid-19 pandemic and the Russia-Ukraine war, and they could deliver growth amid a possible global recession, the newspaper said citing analysts. It is necessary to increase fiscal and taxation support, and promote the integration of the platform economy with the development of smart cities and industrial Internet, the newspaper said.