MNI China Daily Summary: Wednesday, November 11

EXCLUSIVE: China should make its exchange rate mechanism more flexible in coming years to enable it to better absorb market shocks but the People's Bank of China should continue to manage the float, policy advisors told MNI, adding that the recent yuan rally appears to be losing steam despite volatility following the U.S. elections. The onshore yuan is below 6.6 to the dollar, its strongest in more than two years. But supporting factors including the wide interest spread between Chinese 10-year government bonds and U.S. Treasuries and the weakness of the US dollar, are easing, said Chen Daofu, deputy director at the Financial Research Institute of the Development Research Center of the State Council.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY150 billion via 7-day reverse repos with rates unchanged at 2.2% on Wednesday. This resulted in a net injection of CNY30 billion given the maturity of CNY120 billion of reverse repos today, according to Wind Information. The operations aim to maintain the liquidity in the banking system reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.3857% from close of 2.3549% on Tuesday, Wind Information showed. The overnight repo average rose to 2.3467% from the previous 2.3334%.

YUAN: The currency weakened to 6.6200 against the dollar from 6.6041 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.6070, compared with the 6.5897 set on Tuesday.

BONDS: The yield on 10-year China Government Bond was last at 3.2450%, up from Monday's 3.2150%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 0.53% to 3,342.20, while the CSI300 index decreased by 0.99% to 4904.90. Hang Seng Index lost 0.28% to 26226.98.

FROM THE PRESS: Chinese foreign trade firms are buying more foreign currency on concerns that the yuan may weaken following a five-month rally, the 21st Business Herald reported citing market participants. As the U.S. election result becomes clearer, traders believe that the Yuan has peaked, the newspaper said. The companies interviewed said they may gain on exchange rates even given the extremely low interest rates on forex deposits.

China is not entering a prolonged period of deflation despite the CPI index sliding to decade-low 0.5% y/y in October, the Economic Daily commented. The low CPI resulted from a low base of comparison and declining pork prices, the Daily said. Core CPI excluding food and energy prices still rose 0.5% y/y, maintaining the pace of the previous month, the report said.

China will actively consider the COVID-19 vaccine needs of countries within the Shanghai Cooperation Organization and support the creation of hotlines among their centers for disease control and prevention, Chinese President Xi Jinping said at an SCO summit. Xinhua News Agency reported comments from Xi, who said that China would strive to preserve multilateral frameworks, support global governance and strengthen cooperation and communication. He said China welcomed participation in the the opening up of its economy and co-operation in the digital economy, e-commerce and other innovation projects.