MNI China Daily Summary: Thursday, November 24

EXCLUSIVE: The People’s Bank of China (PBOC) is expected to cut banks’ reserve requirement ratio in coming days as fresh Covid outbreaks fuel concerns about the sluggish economic recovery, helping soothe the bond market that has seen yields spike on fears of tightening liquidity, advisers and analysts told MNI.

POLICY: China and the U.S. should remain open to cooperating on regional economic initiatives and solve problems based on mutual trust, said Wang Wentao, Minister of Commerce during his meeting with U.S. Trade Representative Katherine Tai in Bangkok last week, MOFCOM spokeswoman Shu Jueting told reporters. The meeting was described as candid, professional, and constructive.

LIQUIDITY: The PBOC injected CNY8 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY124 billion after offsetting the maturity of CNY132 billion reverse repos 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) rose to 1.7394% from 1.5982% on Wednesday, Wind Information showed. The overnight repo average decreased to 1.0445% from the previous 1.0452%.

YUAN: The currency strengthened to 7.1486 against the dollar from 7.1542 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 7.1201, compared with 7.1281 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.8025%, up from Wednesday's close of 2.7850%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.25% to 3,089.31, while the CSI300 index fell 0.44% to 3,756.81. The Hang Seng Index gained 0.78% to 17,660.90.

FROM THE PRESS: The PBOC is expected to cut the reserve requirement ratio on Friday, after the State Council executive meeting on Wednesday mentioned using RRR cuts in a timely and appropriate manner to maintain reasonable and ample liquidity, 21st Century Business Herald reported. It may only be a 25bp cut given the need to provide space for additional monetary policy moves, the newspaper said. The possible RRR cut comes amid a slower economic recovery, with October retail sales falling and investment decelerating. Inflation will face downward pressure in the next quarter, and the PPI is likely to keep declining over the short to medium term following October’s 1.3% fall, the newspaper said citing Zheng Houcheng, director of Yingda Securities Research Institute. Since 2019, RRR cuts have been signalled by the Premier at the State Council executive meeting or other occasions, and followed by a PBOC announcement at the end of the week, the newspaper noted.

The PBOC clarified that private and state-owned firms should be treated equally under its recently unveiled 16-point support plan for the real estate sector, in a notice issued on its website on Wednesday. The central bank said loan restructuring should protect creditors and allow independent commercially driven negotiations between financiers and real-estate developers. The PBOC will support high-quality real estate firms to acquire distressed assets using market orientated methods, and will use policy banks to issue special loans to guarantee delivery of homes for sound borrowers.

China should aim to bring economic growth back to normal as soon as possible, with the recovery of consumption particularly important amid weakening external demand which could slow exports and manufacturing investment growth next year, Caixin reported citing Wang Yiming, a member of the PBOC’s Monetary Policy Committee. It is necessary to release the spending potential of 460 million families, as it will be difficult to maintain the supply-demand balance if consumption is not supported as exports fall, said Wang. Next year’s monetary policy should continue to be prudent, tilted to loosening, and maintain reasonable and ample liquidity, Wang added.