MNI China Daily Summary: Thursday, October 22

POLICY: China's GDP may grow at least 5% y/y in the last quarter of the year, taking annual growth to around 2%, policy advisors said at the Annual Conference of Financial Street Forum 2020. "Q4 growth may continue to recover to around 6%," said Zhu Guangyao, a former vice minister of finance.

POLICY: China will release its upcoming export control list in a timely manner, Ministry of Commerce spokesman Gao Feng said, following passage of the new Export Control Law last week. The new law clearly stipulates the scope of export control, the control system and measures, as well as the strengthening of international cooperation, said Gao, without giving further details.

POLICY: Technology decoupling may deepen but economic decoupling from China will not be easy as the country has such strong manufacturing capabilities, said Ba Shusong, the chief China economist of Hong Kong Exchanges and Clearing (HKEX) and the chief economist of the China Banking Association at the Financial Street Forum. Without naming the U.S., which is engaged in a trade and technology war with China, Ba said China could strengthen its cooperation with Japan and South Korea to replace the supply of high-end electronic products and equipment from the EU and the U.S.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY50 billion via 7-day reverse repos with the rate unchanged. This offsets the maturity of CNY50 billion of 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) fell to 2.1642% from Wednesday's close of 2.1925%, Wind Information showed. The overnight repo average decreased to 1.9117% from the previous 1.9481%.

YUAN: The currency weakened to 6.6689 against the dollar from 6.6575 on Wednesday. The PBOC set the dollar-yuan central parity rate below the 6.7000 level for a third day at 6.6556, following the 6.6781 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 3.1600%, down from the close of 3.1625% on Wednesday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.38% to 3,312.50, while the CSI300 index decreased 0.31% to 4,777.98. Hang Seng Index gained 0.13% to 24,786.13.

FROM THE PRESS: The yuan is unlikely to appreciate from the current level of around 6.64 to the dollar but will become more volatile due to both bullish and bearish factors including China's faster economic recovery, changes in its foreign exchange policies, the global management of the pandemic, and uncertainties around the U.S. election, the Shanghai Securities News reported. Citing commentators including Guan Tao, an economist from BOC International, the report said that the currency's short-term surge may lead to asset bubbles and put exports under pressure. While short-term factors support the yuan, long-term conditions for a stronger yuan haven't taken shape, the newspaper said citing economist Lian Ping of Zhixin Investment.

China may be forced to tighten monetary policies next year amid increasing liquidity resulting from the expanding balance of payments surplus, Yicai reported in an article written by Zhang Yi, an economist from ZhongHaiShengRong Capital Management, and Zhang Jianyuan, an economist from China Securities Co. The increasing surplus may force the PBOC to add about CNY2.5 trillion in base money from Q4 to Q1 of next year, leading to excess liquidity, wrote the authors. The expected growth of government revenue will likely reduce next year's deficit to less than 3% of the GDP, and thus eliminate the issuance of special treasury bonds for the pandemic, wrote the authors. Limitations on land-related projects are likely to suppress the issuance of special bonds for next year since there are still CNY1.6 trillion of special bonds not yet factored into GDP, the authors wrote.

China will improve the transfer of fiscal funding to local governments to ensure this year's growth targets are achieved and that macro policies are consistently carried out, according to a statement following the weekly State Council meeting chaired by Premier Li Keqiang. China will further expand the use of direct funding to cover people's livelihood such as teachers' salaries and ensure operations at the grassroots level, according to the statement. As of Sept. 30, governments at county levels had received CNY1.57 trillion out of CNY1.7 trillion allocated, which was used to support employment, small businesses and to alleviate poverty, the government said.