MNI China Daily Summary: Monday, October 19

EXCLUSIVE: The People's Bank of China (PBOC) is likely to save any broad monetary policy easing measures for the second half of next year when the economy is expected to slow, continuing to rely in the meantime on targeted measures aimed at particular sectors benefitting less from 2020's rebound, a former official and policy advisors told MNI.

POLICY: China is confident that the current growth momentum can be maintained into the fourth quarter, Liu Aihua, spokeswoman for the National Bureau of Statistics, said at a data release briefing today. The domestic economy grew 4.9% y/y in Q3. Consumption accounted for 1.7 percentage points of that growth while in Q2 it had a negative impact of 2.3 pps, Liu said.

DATA: China's GDP surged 4.9% y/y in Q3, further expanding from the 3.2% in Q2 but shy of the 5.5% gain projected by economists, according to data released by the National Bureau of Statistics (NBS). Retail sales jumped 3.3% y/y in Sep, further expanding from a 0.5% gain in August, outshining the 1.8% projected result. Industrial production grew for the sixth month by 6.9% y/y in Sep, up from the 5.6% gain in Aug and outperforming the 5.8% forecast. Fixed-asset Investment turned positive for the first time this year to grow 0.8% y/y for the first three quarters, reversing the 0.3% fall in the Jan-Aug period, although lower than the projection of 0.9%.

LIQUIDITY: The PBOC injected CNY50 billion via 7-day reverse repos with the rate unchanged. This resulted in a net drain of CNY30 billion given the maturity of CNY80 billion of Treasury's cash deposits at commercial banks, according to Wind Information. The operation aims to keep the liquidity in the banking system ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.2494% from last Friday's close of 2.1867%, Wind Information showed. The overnight repo average rose to 2.1995% from the previous 1.9965%.

YUAN: The currency strengthened to 6.6935 against the dollar from 6.6982 on last Friday. The PBOC set the dollar-yuan central parity rate lower at 6.7010, compared with 6.7332 set on Friday, the biggest daily rise in five trading days.

BONDS: The yield on 10-year China Government Bond was last at 3.1950%, down from the close of 3.2125% on Friday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.71% to 3,312.67, while the CSI300 index decreased 0.76% to 4,755.49. Hang Seng Index rallied 0.64% to 24,542.26.

FROM THE PRESS: China has allowed Shenzhen to issue government bonds in the overseas offshore yuan market as a trial, The Paper reported citing the notice from the National Development and Reform Commission. The issuance of yuan bonds in foreign markets by local governments will effectively release local financial pressure, promote the internationalization of the Yuan, and increase the liquidity and risk resistance of local debts, the Paper reported citing Wang Yuanwei, an analyst from the National Development Bank.

The PBOC is likely to keep the loan prime rate unchanged when it issues its monthly quotation guidance on Tuesday, the Securities Daily reported citing market analysts. The central bank has kept the rate of medium-term lending facilities unchanged this month, an indication that it intends to maintain the current interbank rates, the Daily said. Banks also lack the motivation to lower the October LPR quotes they submit to the PBOC as the average marginal cost of funds hasn't changed significantly, the newspaper said citing Wang Qing, chief analyst at Golden Credit Rating. The one-year LPR has dropped 30 bps so far this year to 3.85%, while the five-year LPR sits at 4.65% after decreasing 15 bps.

China's increased financing support in areas such as manufacturing and infrastructure has led to an increase in medium-to-long term loans which totaled CNY 1.9 trillion in September, up CYN 20.47 billion y/y, the Financial News reported on Monday citing Yuan Xiaohui, a researcher from the BOC Research Institute. The increasing share of medium to long term loans in the credit structure will require banks to balance assets and liabilities to counter the effects of interest rate fluctuations and provide ample liquidity and capital when needed, Yuan said. Medium-to-long term loans to residents are likely to decrease in October due to new housing loan limitations, and loans to businesses are likely to maintain the increasing trend, the News cited Wang Qing, an analyst from Golden Credit Rating.