MNI China Daily Summary: September, Sep 4

EXCLUSIVE: China's priority will be to support employment to bolster consumption, but government investment will remain a mainstay of the economy even as it shifts to a new, more domestically-focused growth strategy better suited to a post-pandemic world and persistent trade tensions with the U.S., a senior advisor to China's State Council told MNI.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY120 billion via 7-day reverse repos with the rate unchanged at 2.2% on Thursday. This resulted in a net inject of CNY20 billion given the maturity of CNY100 billion of reverse repos, 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) fell to 2.1701% from Wednesday's close of 2.1919%, Wind Information showed. The overnight repo average fell to 1.7460% from the previous 2.0659%.

YUAN: The currency weakened to 6.8355 against the dollar from 6.8261 on Wednesday. The PBOC set the dollar-yuan central parity rate lower for a eighth day at 6.8319, compared with Wednesday's 6.8376.

BONDS: The yield on 10-year China Government Bond was last at 3.0925%, down from the close of 3.1000% on Wednesday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.58% to 3384.98, while the CSI300 index lost 0.55% to 4,8417.10. Hang Seng Index lost 0.45% to 25007.60.

FROM THE PRESS: China's State Council meeting held on Wednesday hinted that stable monetary policies would be maintained without significant changes in the current environment, the Economic Information Daily reported citing Wang Yifeng, an Analyst from Everbright Securities, Commenting on the readout of the weekly meeting chaired by Premier Li Keqiang, Wang said that China is likely to make targeted adjustments to reduce overall financing costs and further nurture economic recovery. The policy direction reflected that China's economy had recovered most of its potential following the pandemic, the Daily said.

The momentum for the yuan's appreciation may be sustained by China's stable fundamentals and accelerating recovery, the PBOC-run Financial News reported citing Lian Ping, the director of ZhiXin Investment Research and a former Bocom economist. The Chinese currency has appreciated since June on the back of a weakened dollar, and the market might have overestimated the negative impact of China-U.S. tensions, Lian said. A rebound in China's exports and widening interest rate spreads have solidified expectations of the yuan's strength, the newspaper reported citing analyst Li Liuyang at China Merchant Bank.

The PBOC should cut required reserve ratios to help ease rising liability costs faced by commercial banks given that open market operations can't meet liquidity demand, Ming Ming, chief fixed income with Citic Securities, wrote in a research note. The interest rates on interbank deposit certificates have increased and banks are facing pressure to attract individual depositors, said Ming, a former central bank official. Recent government bond issuance has sapped liquidity, according to Ming.