MNI China Daily Summary: Monday, January 11

EXCLUSIVE: Increasing demand for cash ahead of the Chinese New Year may power a further leg of the yuan rally, but the currency should fluctuate in a wide band around its current level in 2021, with a lower trade surplus and rising U.S. yields weighing more on the exchange rate later in the year, policy advisors and forex analysts told MNI. The yuan could vary from 6.1 to the dollar to 6.85 this year, following a 10.3% fluctuation from high to low in 2020, MNI was told. The People's Bank of China weakened the fixing for the third day in a row Monday, setting it at 6.4764.

POLICY: The People's Bank of China (PBOC) will initiate structural monetary policies to boost the economy and keep the yuan stable in 2021, Governor Yi Gang said in an interview with Xinhua News Agency published late Friday. "The PBOC will ensure the sustainability of the normal monetary policy," said Yi.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY5 billion via 7-day reverse repos with the rate unchanged on Monday. This resulted in a net drain of CNY15 billion given the maturity of CNY20 billion of reverse repos 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) dropped to 1.9394% from the 1.9795% on Friday, Wind Information showed. The overnight repo average increased to 1.2121% from the previous 0.9153%.

YUAN: The currency weakened to 6.4748 against the dollar from 6.4719 on Friday. The PBOC set the dollar-yuan central parity rate higher for a third day at 6.4748. This compares with the 6.4708 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 3.2100%, up from Thursday's 3.1950%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 1.08% to 3,531.59 while the CSI300 index dropped by 0.99% to 5,441.16. Hang Seng Index increased by 0.11% to 27,908.22.

FROM THE PRESS: China should ensure the sustainability of its fiscal policies, avoid abrupt changes and allow major projects to be properly funded, the People's Daily reported citing Bai Yanfeng, dean of the Central University of Finance and Economics. China should improve the transparency and efficiency of its bond market to tackle hidden local government debt risks, said Bai. China should also train monetary policy tools to better guide financial institutions in supporting target areas, the newspaper reported citing Zeng Gang, the deputy director of National Institution for Finance and Development.

China may issue a lower CNY3 trillion in new special local government bonds in 2021, down from last year's 3.75 trillion as control over the coronavirus outbreak allows the government to scale back borrowing and tackle the risk of ballooning debts, the Securities Daily reported cited Zhang Yiqun, a member of the Society of Public Finance of China affiliated with the Ministry of Finance. China should relax the time limit for special bond issuance, expand the scope of usage, and redirect funds according to the needs of specific projects, the newspaper said citing Minister of Finance Liu Kun.

The incoming Biden administration should not underestimate China's resolve and capabilities to defend its sovereignty and territorial integrity, the China Daily said in editorial denouncing a planned trip to Taiwan by the current U.S. ambassador to the UN Kelly Craft. The lifting of U.S. restrictions on official contact with Taiwan would be met with strong opposition and countermeasures from Beijing, which considers the One China policy and a pledge from the U.S. not to officially engage with Taiwan the bedrock of bilateral relations, the official English-language newspaper said. The move is another effort by the outgoing Trump administration to hobble its successor, the Daily said.