MNI China Daily Summary: Thursday, December 12
EXCLUSIVE: The U.S. will inevitably impose tariffs on China next year and limit capital flows between the two countries as it pushes for a currency agreement to force yuan appreciation, a senior policy advisor told MNI.
POLICY: Beijing will take all necessary measures to protect Chinese firms interests regarding the U.S. House of Representatives’ upcoming vote on the annual defense bill, which this year includes more than USD3 billion to remove Chinese telecommunications equipment, He Yadong, spokesperson for the Ministry of Commerce said.
LIQUIDITY: The People's Bank of China (PBOC) conducted CNY66.1 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY28.8 billion after offsetting the maturity of CNY37.3 billion today, according to Wind Information.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6927% from 1.7552% previously, Wind Information showed. The overnight repo average decreased to 1.4955% from the previous 1.5377%.
YUAN: The currency weakened to 7.2630 against the dollar from 7.2590 at Wednesday's close. The PBOC set the dollar-yuan central parity rate higher at 7.1854, compared with 7.1843 set on Wednesday. The fixing was estimated at 7.2639 by Bloomberg survey today.
BONDS: The yield on 10-year China Government Bonds was last at 1.8130%, down from Wednesday's close of 1.8450%, according to Wind Information.
STOCKS: The Shanghai Composite Index rose 0.85% to 3,461.50, while the CSI300 index was up 0.99% to 4,028.50. The Hang Seng Index gained 1.20% to 20,397.05.
FROM THE PRESS: The yuan will likely stabilise and then rise given the U.S. dollar’s weakening trend, China's economic improvement, and increasing foreign exchange settlement by year-end, the central-bank-run Financial News reported, citing experts. The newspaper said the greenback will further weaken as institutional investors tend to sell off dollar assets to ensure year-end profits. Further yuan support will come as Chinese firms increase forex settlement during seasonal peak month of December, and as China's goods trade surplus expanded by 12.9% y/y in the first 11 months, the newspaper said.
Officials have issued guidelines to increase SME access to equity, loan, insurance and guarantee financing, Securities Daily has reported. The guidelines, issued by five government departments including the Ministry of Finance and the People's Bank of China, will help strengthen policy coordination and deepen cooperation between the industrial and financial sector, according to Zheng Lei, chief economist at Samoyed Cloud Technology Group. SMEs face financing difficulties due to insufficient credit assessment, information asymmetry and a lack of collateral, Zheng said, noting the new measures will allow better integration of corporate credit information therefore reducing the credit risk of financial institutions.
Authorities and market participants should be cautious in assuming China needs a low interest rate environment in the future, despite the need for policy rate cuts in the short term to address weak demand and low confidence, according to Hu Xiaopeng, deputy director at the Institute of World Economics at the Shanghai Academy of Social Sciences. Interest-rate hikes in the medium- to long-term may best suit China’s interests given the economic growth expected from technological advancement, while the Federal Reserve’s cutting cycle allows Beijing to attract global capital to support the development of strategic objectives, Hu added.