MNI China Daily Summary: Friday, November 27

EXCLUSIVE: Chinese authorities should take macroprudential measures to tackle high debt, but the People's Bank of China is expected to refrain from tightening in the near future, a senior Chinese policy advisor told MNI. Regulators could hike lenders' capital adequacy ratio when credit ratios rise, enforce property market controls to prevent asset bubbles and supervise bank liquidity levels, Zhang Xiaojing, head of the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said in an interview.

EXCLUSIVE: China should cap the rate of increase in its total debt ratio to 4-10 percentage points of GDP a year over the next five years, as the country pursues more sustainable growth and tackles a local government off-balance sheet debt pile which could total more than a third of total output, a prominent policy advisor told MNI in an interview.

EXCLUSIVE: The yuan may test its five-year peaks against the dollar in 2021 as authorities adopt a hands-off approach to management of a currency used increasingly for international settlement and for foreign reserves, a former chief economist at a major state-owned Chinese bank told MNI.

POLICY: China has the potential to set and achieve average annual growth of about 5% for the next five years after reaching 2-3% this year, although targets for 2021-2022 may be suspended to adjust for the skewing caused by the pandemic this year, Li Xuesong, a senior policy advisor told reporters today.

LIQUIDITY: The PBOC injected CNY120 billion via 7-day reverse repos with rates unchanged at 2.2%. This resulted in a net injection of CNY40 billion given the maturity of CNY80 billion repos today, according to Wind Information. The operation aims to maintain the liquidity in the banking system at a reasonable and ample level, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.3676% from close of 2.3444% on Thursday, Wind Information showed. The overnight repo average fell to 0.8178% from the previous 1.2596%.

YUAN: The currency weakened to 6.5823 against the dollar from 6.5729 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.5755, compared with the 6.5780 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 3.3100%, up from Thursday's 3.3050%, according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 1.14% to 3,408.31 while the CSI300 index gained by 1.24% to 4,980.77. Hang Seng Index edged up 0.28% to 26,894.68.

FROM THE PRESS: China's central bank is likely to continue marginal easing into next year, the Securities Times reported citing Ming Ming, Deputy Director of CITIC Securities Research Institute. Speaking after the release of the PBOC Q3 Monetary Policy Implementation Report, Ming said the central bank may focus on controlling the credit supply and keep the macro leverage ratios basically stable. The current inter-bank liquidity is relatively low, and continued tightening may cause a "policy cliff" and rapid deleveraging which would not be conducive to economic development, Ming said.

The incoming Biden administration will be judged on how constructive it can be in managing its differences and in seeking coexistence with China, the Global Times said in an editorial. Major U.S. allies all have extensive cooperation with China and their strengthening alliances with the U.S. do not mean decreasing ties with China, the newspaper said. China's economic expansion gives it the right to partake in rule-making with other countries, even as the U.S. accuses China of trying to supplant its own dominance, the Times said.

More global investors are betting on China's stable economy, fast-improving trade structure and low asset valuations and are going long on their Chinese investments, said Securities Times in a commentary. The upward trend in both Chinese stock markets and the yuan exchange rate in the past few months has attracted faster capital inflows, while the continued appreciation of the yuan will increase the value of yuan assets and further attract capital, the newspaper said. Investors are now fearing they will lose out if they do not invest in China, the commentary said.