MNI China Daily Summary: Monday, December 7

EXCLUSIVE: China will be able to withdraw fiscal stimulus measures and lower its record high budget deficit next year as growth could pick up to about 8% but the rollback should be gradual to avoid further stress on local government finances, policy advisors told MNI. Beijing may seize the opportunity offered by the robust recovery to lower the budget deficit ratio to 3% of GDP, its line in the sand, according to Zhang Yiqun, director of a fiscal studies institute affiliated with Jilin province's finance department. This would cut the budget deficit by CNY760 billion to CNY3 trillion, Zhang said.

POLICY: China and the U.S. should commence talks at all levels, cooperating on issues including fighting the pandemic, promoting the global economy recovery and climate change, China's Foreign Minister Wang Yi said Monday. Dialogue can be restarted on coordination of macro-economic policies and ensuring the stability of global supply chains, according to a statement on China's Ministry of Foreign Affairs noting a virtual meeting attended by Wang and representatives from U.S.-China Business Council.

DATA: China exports surged 21.1% y/y to $268.07 billion in November, much faster than last month's 11.4% y/y increase, marking the sixth consecutive monthly rise and the quickest growth since February 2018. Exports increased 2.5% y/y over the first 11 months of the year, compared with the previous 0.5% y/y gain. Meanwhile, imports rose 4.5% y/y to $192.65 billion in November, slightly down from last month's 4.7% increase. Imports have fallen 1.6% y/y so far this year, narrowing from the 2.3% y/y in the Jan-Oct period.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY50 billion via 7-day reverse repos with rates unchanged at 2.2% on Monday. This resulted in a net drain of CNY400 billion given the maturity of CNY150 billion of reverse repos and the maturity of CNY300 billion today, according to Wind Information. The operations aim 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 2.0662% from close of 2.0372% on Friday, Wind Information showed. The overnight repo average increased to 1.3470% from the previous 1.0786%.

YUAN: The currency weakened to 6.5382 against the dollar from 6.5302 on Friday. The PBOC set the dollar-yuan central parity rate lower for a fourth day at 6.5362 on Monday, compared with the 6.5507 set on last Friday.

BONDS: The yield on 10-year China Government Bond was last at 3.2900%, up from Friday's 3.2850%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.81% to 3,416.60 while the CSI300 index decreased by 0.86% to 5,022.24. Hang Seng Index down 1.23% to 26,506.85.

FROM THE PRESS: China should maintain positive fiscal policies in 2021 to support the economy given a projected decline in land revenues and the expected further drop in tax and fee revenues, the Economic Information Daily said in a commentary. China needs to increase the size of government debt with ample liquidity, and fiscal spending should expand as the 14th Five-Year plan is implemented while social security costs rise, said the newspaper. The normalization of China's fiscal and monetary policies should be more in tune with the needs of macro-regulation, the Daily's commentary said.

The incoming Biden administration can repair the relationship with China by welcoming China's initiative of joining the CPTPP, according to a commentary published in China Daily and written by Liu Hui, a researcher at the Institute of American Studies at the Chinese Academy of Social Sciences. Liu makes the point that the predecessor of the CPTPP was led by the U.S., and he called for other positive measures such as reviving 10-year visas to boost exchange and cooperation with China on climate change. Previous cooperation between the U.S. and China had led to resolving issues around Iran's nuclear push and North Korea, and these two issues would be good starting points for improving China-U.S. relations, Liu wrote.

China is likely to maintain tight controls on the property sector and refrain from using housing development to stimulate the economy, the People's Daily reported citing Yin Zhongli, a director from the Chinese Academy of Social Sciences. In his comments, Yin was interpreting the outcome of the Real Estate Symposium held by the Ministry of Housing and Urban-Rural Development on Dec 3. He said China would continue to let local authorities develop their own approach specific to each region. China should also expand affordable housing to protect lower-income groups, Yin told the Daily.