MNI China Daily Summary: Thursday, October 29

EXCLUSIVE: A move by the People's Bank of China to ask some banks to suspend use of the counter-cyclical factor in contributions to yuan fixing came amid signs of increasing bets on appreciation but the PBOC remains determined to increase the market's role in determining the exchange rate, a former senior forex official told MNI, with a policy advisor adding that the factor could be reintroduced in the future.

EXCLUSIVE: Chinese consumer spending is recovering faster than expected and could accelerate in the fourth quarter provided the pandemic remains under control, narrowing the full-year decline, policy advisors told MNI. "Retail sales may reach 2-3% growth in Q4, and optimistically it may achieve a total volume close to the CNY41 trillion last year," said Wang Wei, director-general of the Institute of Market Economy at the State Council's Development Research Center.

POLICY: China's online retail boom continued in the first nine months of the year, with sales exceeding CNY8 trillion, a rise of 9.7% y/y, Gao Feng, a spokesman at the Ministry of Commerce said at Thursday's regular briefing. Online sales of goods reached CNY6.6 trillion, rising 15.3% y/y, accounting for 24.3% of the overall retail sales, said Gao. Online service consumption picks up faster, with internet-based catering services increasing by nearly 10% y/y in Q3, while the growth rate of online tourism stopped the declines seen earlier in the year, Gao said.

LIQUIDITY: The PBOC injected CNY140 billion via 7-day reverse repos with the rate unchanged. This resulted in a net injection of CNY90 billion after the maturity of CNY50 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 2.4962% from Wednesday's close of 2.5312%, Wind Information showed. The overnight repo average decreased to 2.1332% from the previous 2.3980%.

YUAN: The currency strengthened to 6.7104 against the dollar from 6.7138 on Wednesday. The PBOC set the dollar-yuan central parity rate higher for a fifth trading day at 6.7260, compared with the 6.7195 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 3.1800%, up from the close of 3.1775% on Wednesday, according to Wind Information.

STOCKS: The Shanghai Composite Index gained 0.11% to 3,272.73, while the CSI300 index increased 0.75% to 4,772.92. Hang Seng Index fell 0.49% to 24,586.60.

FROM THE PRESS: The yuan is set for a strong trend with two-way fluctuations after regulators removed so-called countercyclical factors, the Chinese Securities Journal said in an editorial. The removal reflects the intention for a market-based approach allowing the flexibility of yuan exchange rates and monetary policy autonomy, the Journal said. The drop in depreciation risk will promote inbound capital and the opening up of the financial sector, and the neutral approach of multiple macroprudential policy tools will support outbound capital and the acquisition of overseas assets. A steady yuan exchange rate and high interest spreads between China and other economies will promote the acceptability and internationalization of the currency, the Journal wrote.

China is likely to reduce the issuance quotas for local government special bonds next year given the accelerating recovery and rising pressure for local debt repayments, the China Securities Journal reported citing analysts. Around 95% of the quotas for the CNY3.75 trillion infrastructure project special bonds have been used this year while some infrastructure projects have failed to take off, delaying the use of funds, the newspaper said citing Pan Helin, a professor at Zhongnan University of Economics and Law. The government is unlikely to ramp up infrastructure investments next year as consumption and manufacturing investments recover, the newspaper said citing analysts.

China can maintain 6%-8% yearly growth until 2030 while contributing around a third of global growth through pursuing the dual circulation model, the Securities Journal reported citing Lin Yifu, an economist and a former senior vice president of the World Bank. The service sector will increasingly support China's economy as the role of exports wanes, Lin told the Journal. China's advantage in traditional industries, advancement in AI, cloud computing, and 5G, and its large market will help expand its world leadership, Lin said.