MNI China Daily Summary: Monday, January 18

EXCLUSIVE: A multi-billion-dollar stake sale by the world's largest distiller may prefigure further asset disposals by China's local governments, as they struggle to pay off record debts swollen to at least a quarter of national GDP by emergency pandemic spending, government advisors told MNI.

POLICY: China's economy will continue to recover at a steady pace in 2021 as trade retains its strong momentum while investment strengthens further and consumption continues to grow, according to a quarterly briefing by the National Bureau of Statistics (NBS) today.

DATA: The Chinese economy, impacted heavily by the COVID-19 pandemic, registered 2.3% y/y growth in 2020, with Q4 GDP improving to 6.5% y/y as both industrial output and fixed-asset investment peaked, according to data released by the NBS today. Industrial production grew for the ninth month by 7.3% y/y in December, edging up 0.3 percentage points from the gain in November and outperforming the 6.9% forecast. Retail sales rose 4.6% y/y in December, slowing from the previous year-peak of 5.0% y/y growth. Fixed-asset Investment registered a growth of 2.9% y/y in the Jan-Dec period, improving from Jan-Nov's 2.6% y/y increase.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged. This resulted in a net drain of CNY3 billion given the maturity of CNY5 billion of reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.1777% from the 2.0109% on Friday, Wind Information showed. The overnight repo average increased to 2.1393% from the previous 1.7537%.

YUAN: The currency weakened to 6.4930 against the dollar from 6.4752 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.4845. This compares with the 6.4633 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 3.2150%, up from Thursday's 3.1925%, according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 0.84% to 3,596.22 while the CSI300 index gained 1.11% to 5,518.52. Hang Seng Index increased by 1.01% to 28,862.77.

FROM THE PRESS: The PBOC is expected to refrain from major policy changes such as cutting RRRs or monetary tightening before the Mid-February Chinese New Year and instead maintain liquidity through OMO/MLF operations, the China Securities Journal wrote in an editorial. The central bank has had a long period to use normal tools, and recent MLFs proved that there is ample liquidity and funding, the editorial said. Uncertainties from recent local virus outbreaks, the coming tax payment period and higher cash demand during the holidays will prevent the PBOC from tightening, the Journal said.

Chinese enterprises should step up their exchange rate risk management capacity, should be wary of market sentiment and adapt to higher yuan volatilities, the official People's Daily said in an editorial. Companies could consider hedging through FX derivatives or use the yuan as a settlement currency in cross-border transactions, wrote the newspaper. Financial institutions should increase hedging tools and reduce costs, the Daily said.

China hopes to reopen dialogue, build mutual trust and rational relations with the U.S., wrote Wang Yi, China's Minister of Foreign Affairs, in the Communist Party magazine QiuShi published on Saturday. Beijing hopes to peacefully co-exist with the U.S. despite the differences in social systems, Wang wrote.

The incoming Biden administration should abolish any diplomatic offenses from the last days of the current Trump administration, rather than legitimizing them, the Global Times said in an editorial on Sunday. China and the U.S. are at risk of sliding into a war should the new administration carry out sanctions on Chinese companies and in particular disregard the norms of engaging with Taiwan, the newspaper said.