MNI China Daily Summary: Thursday, December 15

EXCLUSIVE: The yuan could rally to 6.5 against the U.S. dollar next year as China’s economic rebound gathers pace and the Federal Reserve approaches the peak of its tightening cycle, advisers and economists told MNI.

EXCLUSIVE: Beijing’s plans to revive the property sector by easing financing rules is being undermined by weak sales that have diminished the value of developers’ collateral needed to access finance, raising pressure on local governments to deliver more policy support to boost transactions, advisers and analysts told MNI.

DATA: Retail sales fell 5.9% y/y in November to hit a six-month low, extending the 0.5% y/y decline seen in October and missing the median forecast for a 3.6% y/y fall. Industrial production rose 2.2% y/y in November from October's 5% y/y, missing the consensus forecast for a 3.8% y/y rise and also hitting a six-month low. Fixed-asset investment edged down to 5.3% y/y in the first eleven months, compared to the 5.8% gain in the Jan-Oct period. This underperformed the median forecast for a 5.7% rise.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos, and CNY650 billion via 1-year Medium-term Lending Facility, with the rates unchanged at 2.00% and 2.75%. The operations led to a net injection of CNY150 billion after offsetting the maturity of CNY2 billion reverse repos and CNY500 billion MLFs today, 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 1.4846% from 1.6756% on Wednesday, Wind Information showed. The overnight repo average increased to 1.2203% from the previous 1.1912%.

YUAN: The currency weakened to 6.9690 against the dollar from 6.9400 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.9343 on Thursday, compared with 6.9535 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.9050%, up from Wednesday's close of 2.8830%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.25% to 3,168.65, while the CSI300 index fell 0.07% to 3,951.99. The Hang Seng Index lost 1.55% to 19,368.59.

FROM THE PRESS: China’s export outlook for next year can be improved if measures are taken to promote foreign trade, according to Yicai.com. Policy recommendations include making full use of the Regional Comprehensive Economic Partnership trade agreement, diversifying exports by increasing trade with Belt and Road nations, and coordinating efforts with the Asian Infrastructure Investment Bank. Other options include increasing financial and fiscal policy support for foreign trade enterprises, avoiding exchange rate risks, and promoting RMB trade settlement. New forms of cross-border trade such as use of China-Europe express trains should be used, and the use of funds to promote services trade should be enhanced.

The State Council has issued a report detailing plans to enhance domestic demand from 2022- 2035, according to China Securities News. The plan cites the need for capital markets to serve the real economy, and to cultivate a complete domestic demand system by 2035. Growth in domestic demand is inevitable as China moves to a new development model, with domestic circulation the main driver of economic growth, the newspaper said citing experts. There is a need for effective investment in sectors like infrastructure upgrading and technological transformation to enhance high quality growth. Improving people's livelihoods under urbanisation and rural-revitalisation is key to increasing domestic consumption, another vital engine of domestic demand, the paper said.

The PBOC issued draft rules on supervising and managing financial infrastructure to promote finance to better serve the real economy, according to a statement on the PBOC website. It will maintain absolute state control over financial infrastructure institutions that involve national security, and a security review shall be conducted for foreign investment that may affect national security, the statement said. It also barred anyone or institution from setting up any form of financial infrastructure without approval, or use “finance”, “exchange”, “trading center” and other approximate names. The draft is open for public comments.