MNI China Daily Summary: Thursday, January 11

EXCLUSIVE: The Peoples’ Bank of China (PBOC) will continue to inject funds into its targeted facilities, such as the Pledged Supplementary Lending programme, to shore up infrastructure and property, while Beijing may issue additional government bonds to cover a fiscal gap later this year, a prominent policy advisor told MNI in an interview.

POLICY: China sold 30.09 million vehicles in 2023, an increase of 12% y/y, according to data published by the China Association of Automobile Manufacturers Thursday. New energy vehicles sales reached 9.4 million units, up 37.9% y/y and increasing market share by 5.9pp to 31.6%.

LIQUIDITY: The PBOC conducted CNY27 billion via 7-day reverse repo on Thursday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY12 billion reverse repos after offsetting CNY15 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.8353% from 1.8017%, Wind Information showed. The overnight repo average increased to 1.6302% from 1.5865%.

YUAN: The currency strenghthened to 7.1594 against the dollar from 7.1704 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 7.1087, compared with 7.1055 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.5650%, flat on Wednesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.31% to 2,886.65 while the CSI300 index increased 0.57% to 3,295.67. The Hang Seng Index was up 1.27% to 16,302.04.

FROM THE PRESS: The yuan will gradually strengthen to 7 against the U.S. dollar throughout 2024, but the currency could weaken to 7.3 should the dollar rally again in H1 of 2024 alongside weaker-than-expected performance of the Chinese economy, said Wang Tao, head of Asia Economic Research at UBS. USD may find it hard to weaken, at least in H1, likely supported by the greater-than-expected resilience of the U.S. economy which will give the Federal Reserve reason to hold interest rates. The USD will find it difficult to depreciate if the interest-rate spread does not narrow significantly, said Wang Xinjie, chief investment strategist at Standard Chartered, noting that central banks in other developed countries also have rate-cut expectations. (Source: Yicai)

China’s Chief Economist Index printed at 50.89 in January, unchanged from last month and above the expansionary mark of 50.0, Yicai news outlet said. Regarding data releases for December 2023, surveyed economists' average forecast for CPI was -0.34% and PPI -2.71%. Economists expect retail sales grew 8.05% y/y with fixed-asset investment up 3.08% y/y, offset by a fall in real-estate investment at -9.07% y/y. Ding Anhua, chief economist at China Merchants Bank expects the PBOC in 2024 will focus on reducing real interest rates with two RRR and two MLF rate cuts. For fiscal policy, Ding predicts the fiscal deficit to start at 3.0% but will later expand to 3.6% after the issuance of additional treasury bonds.

Local governments are planning to reserve ultra-long-term special treasury bond projects, mainly in the areas of food, energy and industrial chain security, urbanisation, and rural revitalisation, 21st Century Business Herald reported citing anonymous sources. In October last year, China issued an additional CNY1 trillion of China Government Bonds which were managed as special treasury bonds.