MNI China Daily Summary: Thursday, September 10

EXCLUSIVE: China should encourage cities with a population over 5 million people to form metropolitan city clusters instead of limiting their size, a policy advisor tells MNI. Increased urbanisation would help the country's "dual circulation" economic policy, he added.

POLICY: China will focus on building modern logistic systems to deepen supply-side structural reform and allocate resources and support for the "dual circulation" strategy, Chinese Chairman Xi Jinping told a meeting with the Financial and Economic Commission of the CPC Central Committee. China should continue to push for the digital development of logistics systems to help improve storage capacity, response speeds and impact resistance, said Xi.

POLICY: China will support the development of new digital business models to drive consumption and spur economic growth, the State Council said following its weekly executive meeting on Wednesday night., encouraging innovating contactless consumption such as online open courses and Internet diagnosis in the health sector, as well as promoting online and offline integration of fitness and tourism, according to a government statement.

POLICY: Increasing Chinese demand is becoming a driving force behind the growth of the global semiconductor market, Ministry of Commerce spokesman Gao Feng said Thursday, with the country now leading the way in imports. Demand has risen steadily as the Covid-19 outbreak has changed people's lifestyles, boosting the need for integrated circuits to make servers, personal computers, tablets, and electronic medical devices, Gao said when asked if increasing semiconductor imports was related to the U.S. tightening export restrictions on telecoms firm Huawei.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY140 billion via 7-day reverse repos with the rate unchanged. This resulted in a net injection of CNY20 billion given the maturity of CNY120 billion of reverse repos, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 2.0534% from Wednesday's close of 2.1607%, Wind Information showed. The overnight repo average fell to 1.3372% from the previous 1.5988%.

YUAN: The currency strengthened to 6.8398 against the dollar from 6.8460 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.8331, compared with Wednesday's 6.8423.

BONDS: The yield on 10-year China Government Bond was last at 3.0900%, up from the close of 3.0850% on Wednesday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.61% to 3,234.82, while the CSI300 index decreased 0.06% to 4,581.98. Hang Seng Index declined 0.64% to 24,313.54.

FROM THE PRESS: China needs to preserve and widen its access to the U.S. market and should not narrowly interpret the term "inner circulation" as actively seeking to reduce dependence, Song Guoyou, the deputy director of the centre of U.S. research at Fudan University, wrote in Global Times. China still counts the U.S. as the top destination for exports and depends heavily on its advanced technology, including cancer drugs, and there was potentially a huge negative impact if the U.S. imposes financial sanctions, Song wrote. China should defend its engagement with the U.S. market and avoid measures that could worsen the decoupling.

China's inflation may return to a downward trend in Q4 due to gradually declining food prices, the Economic Information Daily reported citing Tang Jianwei, the chief researcher at the Bank of Communications. Pork prices, the main CPI driver, may plunge due to the higher base of comparison with last year and improved supply, while the supply of vegetables and fruit is seen rising, the newspaper said citing analysts. CPI rose 2.4% y/y in August, slower than July's 2.7%.

The PBOC should continue to make targeted RRR cuts to help banks replenish long-term capital, the Securities Daily said citing researchers from Kaiyuan Securities. The cost of liquidity is likely to rise by the end of the year due to reduced deposits, limited injections, and less-than-expected government funding, the newspaper said.