MNI China Daily Summary: Wednesday, October 21

POLICY: China's fiscal revenue will continue to grow as tax income increases with the economic recovery, but the authorities will prioritize the fiscal sustainability of local governments by transferring central government funds, officials at the Ministry of Finance said Wednesday in a briefing. The government's total revenue contracted 6.4% y/y in the first three quarters of this year, compared with a 3.3% increase in the same period of 2019, said Liu Jinyun, a senior ministry official.

POLICY: China's central bank will seek to reduce the volatility of the macro-leverage ratio, expecting it to stabilize next year as economic growth fully recovers, People's Bank of China Governor Yi Gang told the Annual Conference of Financial Street Forum 2020 Wednesday. The ratio has risen during the period of recovery from the pandemic, Yi said, but the PBOC will better control liquidity to keep the leverage ratio at a reasonable level in the long run, Yi said.

Policies will continue to support small businesses, green development and stabilize employment, Yi said. The central bank will keep improving structural policies to help achieve positive annual growth, Yi said, warning over risks still for the economy and Covid-19. China will keep policies flexible and appropriate, with measures targeted to balance stabilizing economic growth and preventing risks, he noted, saying the PBOC will keep a normal policy stance for as long as possible.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY80 billion via 7-day reverse repos with the rate unchanged on Wednesday. This resulted in a net injection of CNY80 billion as no reverse repos matured, 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) decreased to 2.1925% from Tuesday's close of 2.3046%, Wind Information showed. The overnight repo average fell to 1.9481% from the previous 2.1367%.

YUAN: The currency strengthened to 6.6575 against the dollar from 6.6818 on Tuesday. The PBOC set the dollar-yuan central parity rate below the 6.7000 level for a second day at 6.6781, following the 6.6930 set on Tuesday.

BONDS: The yield on 10-year China Government Bond was last at 3.1800%, down from Tuesday's 3.1900%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.09% to 3,325.02, while the CSI300 index decreased 0.01% to 4,792.83. Hang Seng Index rallied 0.75% to 24,754.42.

FROM THE PRESS: The PBOC's countercyclical move to remove forex dealers' risk reserves has failed to tame the appreciation of the yuan as global capital picked up the pace of acquiring Chinese assets, the 21st Century Business Herald reported citing analysts. The bullishness has been driven by expectations of easing Sino-U.S. tensions and the rapid recovery of the Chinese economy, the newspaper said citing Zhao Yaoting, global market strategist at Invesco Asia Pacific. Many investors also noted the PBOC made no new measures to counter the yuan's rise, the newspaper said citing an unidentified hedge fund manager. Onshore yuan hovered around 6.6800 against the dollar yesterday after touching the highest this year of 6.6784, the Herald said.

China is "fully capable" of keeping its economy growing at 5% to 6% each year during 2021-2025 under the government's 14th Five Year Plan as the resilient economy and strong industrial structure overcomes the pandemic, the 21st Business Herald reported on Wednesday citing Peng Sen, the chairman of the China Society of Economic Reform and a former NDRC vice chairman. China will focus on reform of market elements such as land, labor and capital to ensure high quality of growth rather than focusing purely on the rate, Peng said.

The PBOC is likely to use open market operations while shunning RRR cuts to maintain liquidity and interest rates at a stable level, the Shanghai Securities News said citing Wen Bin, a researcher from China Minsheng Bank. The PBOC left LPRs unchanged for the sixth month as the strengthening economy forestalled looser policies, the newspaper reported citing comments by Wang Qin, the macro-analyst from Golden Credit Rating. Future fiscal expenditures will improve the liquidity and reduced structured deposits will help banks cut debt costs and push for a decrease in real loan interest rates, Wen said.