MNI China Daily Summary: Thursday, October 15

POLICY: China's robust recovery has fueled a "moderate" appreciation of the yuan and will help provide conditions for stabilising the economy's leverage ratio at a reasonable level, People's Bank of China officials told reporters Wednesday. The yuan's 3.3% rise against the dollar so far this year reflects benign economic fundamentals, said Sun Guofeng, head of the monetary policy department. Orderly capital inflows and wide interest spreads with other major economies as China maintains monetary policy at normal settings have also contributed to the currency's "moderate" advance, said Sun.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY500 billion via one-year medium-term lending facility (MLF) with the rate unchanged at 2.95% on Thursday. This aims to roll over the CNY200 billion of MLFs maturing this month and fully meet liquidity needs, the PBOC said on its website. The PBOC also injected CNY50 billion via 7-day reverse repos. In total, the central bank net injected CNY550 billion today as no repos mature today.

DATA: China's September inflation slowed further to 1.7% y/y from 2.4% in August, the lowest level in 19 months, as food costs moderated the impact of a rising CPI. Analysts had expected 1.9% y/y. Factory-gate prices tumbled slightly and ended the rebound of the last three months, as previewed in the Reality Check on Oct 14.

DATA: China's M2 money supply rose 10.9% y/y in September, registering a three-month high and the second highest level this year, data released Wednesday showed. Growth quickened from the 10.4% seen in August, as the People's Bank of China net injected CNY290 trillion into the interbank market through the month, indicating it kept an ample liquidity condition with the economy still recovering from the Covid-19 hit. The figure beat the median market forecast of 10.4%.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.1821% from 2.1302% on Wednesday, Wind Information showed. The overnight repo average rose to 2.0334% from the previous 1.9663%.

YUAN: The currency strengthened to 6.7300 against the dollar from 6.7370 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.7374, compared with 6.7473 on Wednesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.2250%, up from the close of 3.2150% on Wedesday, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 0.26% to 3,332.18, while the CSI300 index lost 0.17% to 4798.74. Hong Kong Hang Seng Index dropped 2.06% to 24158.54 with technology companies seeing most of the losses. Media reported that U.S. president Trump mulls to add Ant Financial, Ablibaba's subsidiary, to a trade blacklist.

FROM THE PRESS: The yuan is likely to maintain two-way fluctuations given uncertainties such as movements in the dollar index, lower export demand due the pandemic, the slow economic recovery and rising protectionism, Liu Ying, a researcher from Renmin University's Chongyang Institute for Financial Studies, commented to the 21st Century Business Herald. The yuan is unlikely to be on an appreciation trajectory as any abrupt movements could damage China's international trade, said Liu. Monetary policies will likely target liquidity and keep the currency fluctuating at an appropriate level, Liu told the Herald.

Chinese property developers are purchasing less land to reduce debt as governments tighten policies for the market, the China Securities Journal reported citing data collectors. Land volumes in 40 major cities transacted in the week ending Oct. 11 fell 71% from a week ago, while sales dropped 83%, the newspaper said citing the China Index Academy. Developers including Evergrande have sought to reduce their land holdings, the newspaper said. Local governments including Xuzhou and Chengdu have implemented further curbs while the central bank has reiterated its stance against property speculation, the Journal said.

An outbreak of the coronavirus in China's northeastern city Qingdao is likely to be contained and limited to local infections while a "second wave" of large-scale infections is unlikely, the China News Service reported citing infections disease specialist Wu Zunyou of the China Center for Disease Control and Prevention. As of yesterday, there were no new cases in the tourist city of Qingdao in addition to the 12 previously reported, though the actual scale may only be known after another week of observation, the news agency said. The local government said the outbreak is likely to be limited to a hospital and unlikely to spread outside the premises, China News said.