MNI China Daily Summary: Thursday, February 2

EXCLUSIVE: Economic scarring inflicted by three years of Covid, coupled with weak balance sheets and lower productivity, risks undermining the government’s push to deliver growth of over 5% and its long-term ambition of high-quality development, policy advisers said.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY66 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY401 billion after offsetting the maturity of CNY467 billion reverse repos.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) dropped to 1.7500% from 2.0370% on Wednesday, Wind Information showed. The overnight repo average fell to 1.5320% from the previous 2.1002%.

YUAN: The currency closed at 6.7221 against the dollar at 16:30pm Beijing time from 6.7410 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.7130, compared with 6.7492 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.8950%, down from Wednesday's close of 2.9350%.

STOCKS: The Shanghai Composite Index rose 0.02% to 3,285.67, while the CSI300 index was down 0.35% to 4181.15. The Hang Seng Index was down 0.52% to 21958.36.

FROM THE PRESS: China issued a draft rule to ease regulations for initial public offerings in a bid to liberalise the stock market to broaden access to capital, the China Securities Regulatory Commission (CSRC) said in a statement late Wednesday. A registration-based IPO system would mean an end to vetting of planned share sales by regulators, while it would expedite the listing process and allow more freedom in setting prices. Trading rules on the boards will also be modified, with no daily limits for the first five trading days but with a cap of 10% on both sides starting on the sixth day. The new system will be implemented at all stock exchanges in Shanghai, Beijing and Shenzhen. The CSRC is soliciting public opinions until February 16.

Chinese President Xi Jinping called for enhanced efforts to boost demand while deepening supply-side reforms in order to promote a broader domestic economic cycle, according to a Xinhua News Agency report about a recent meeting chaired by the President. China should work to expand demand for consumption, investment, as well as finance, Xi pointed out, urging accelerating the pace of achieving self-reliance in science and technology. He said China should strive to become the world’s major scientific and innovation centre as quickly as possible. China will guide the healthy use of capital and create a good environment for various entities to invest and start businesses, he noted.

The People’s Bank of China is likely to expand the lending quota of policy financial instrument to fund infrastructure projects and spur the economy, China Securities Journal reported citing analysts on Thursday. The tool, implemented by three policy banks, have supported 2700 projects since being launched in 2022, analysts said, noting it has become a key measure to push credit expansion. The PBOC’s targeted relending tools, coordinated with fiscal and industrial policies, will be strengthened to help lower funding costs for key and weak sectors, meanwhile the central bank would introduce new facilities for agriculture, small businesses, tech innovation and aged care, the analysts said.