MNI China Daily Summary: Friday, January 29

EXCLUSIVE: China could inject capital into its banking system and accelerate the disposal of bad loans made under emergency Covid aid programs even as the economy returns to trend growth rates, a former member of the People's Bank of China's monetary policy committee told MNI.

EXCLUSIVE: China's capital account should be largely convertible by 2025, with less intervention in the yuan exchange rate and only limited restrictions retained in order to safeguard financial stability, a former member of the PBOC's monetary policy committee told MNI.

EXCLUSIVE: China's anti-epidemic measures to limit travel during the upcoming Chinese New Year holidays are a boon for manufacturing companies that are inundated with orders and could lift production data, offsetting any weakness in consumption and sectors such as transportation, advisors said.

POLICY: Loans to China's real estate sector grew by CNY5.17 trillion in 2020, 7.9 percentage points lower than that in the previous year, according to a report released by the People's Banks of China on its website on Friday. Lending to the sector accounted for 26.1% of 2020's overall new loans The total outstanding balance of real estate lending totaled CNY49.58 trillion by the end of 2020, a rise of 11.7% y/y. However, the growth rate declined 3.1 percentage points compared end-2019 and has now decelerated for 29 consecutive months.

LIQUIDITY: The PBOC injected CNY100 billion via 7-day reverse repos with the rate unchanged today. This results in a net injection of CNY98 billion after the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to keep the liquidity in the banking system reasonable and ample, as fiscal expenditures have increased significantly by the end of the month, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 3.1587% from the 3.0801% on Thursday, Wind Information showed. The overnight repo average increased to 3.3334% from the previous 3.0487%.

YUAN: The currency strengthened to 6.4612 against the dollar from 6.4758 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.4709 today. This compares with the 6.4845 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 3.2300%, down from Thursday's 3.2550%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 0.63% to 3,483.07, while the CSI300 index dropped 0.47% to 5,351.96. Hang Seng Index decreased 0.94% to 28,283.71.

FROM THE PRESS: The PBOC drained CNY150 billion yuan on Thursday, pushing up market rates as regulators hoped to prevent asset inflation and excessive arbitraging through unregulated leveraging, the Financial News reported citing Zhou Maohua, an analyst from China Everbright Bank. The overall liquidity demand before the mid-February Lunar New Year has dropped as issuance of local debt quotas was delayed, while demand for cash slowed due to pandemic protocols, the newspaper wrote citing Li Yiju, a researcher from the Bank of China. The PBOC may still inject through OMOs to meet rising demand during the Lunar New Year, the newspaper reported citing Li.

The Chinese yuan is likely to appreciate over 2021 as the economy continues to perform, though it may come under pressure if the western economies shake off the effects of the pandemic and withdraw easing measures, Huang Yiping, a former member of the PBOC Monetary Policy Committee, said in an interview with the China Finance 40 Forum. Though the Federal Reserve seems unlikely to substantially adjust its monetary policy this year, China should take precautions from now on to prevent possible capital outflows, rising interest rates and currency devaluation, Huang said.

The China Banking and Insurance Regulatory Commission (CBIRC) will improve its systems to resolve bond default risks and strictly forbid debt evasions, the Shanghai Securities News reported citing the agency's annual work meeting. The CBIRC will better regulate private placements to avoid risks such as illegal fundraising and lending, punish malicious behaviors such as fraudulent issuance, financial fraud, and market manipulation. It would also supervise the financial system to close all loopholes, according to the News report.