MNI China Daily Summary: Thursday, January 28

EXCLUSIVE: The People's Bank of China is likely to rely on short-term facilities to address tightening liquidity before the Chinese New Year holiday rather than cut banks' reserve requirement ratios as Covid prevention measures subdue demand for cash and monetary policy makers remain wary of feeding financial bubbles, policy advisors told MNI.

POLICY: China's tax revenue from individual incomes increased by 11.4% y/y as salaries rose amid the recovery from the Covid-19 pandemic and as capital gains increased through channels such as equity transfers, according to the Ministry of Finance. Despite this, overall fiscal revenue came in at CNY18.29 trillion, dropping 3.9% y/y, in 2020.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY100 billion via 7-day reverse repos with the rate unchanged today. This resulted in a net drain of CNY150 billion given the maturity of CNY250 billion of reverse repos today, according to Wind Information. The operation aims to keep liquidity in the banking system reasonable and ample, as fiscal expenditures have increased significantly near the end of the month, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 3.0801% from 3.0936% on Wednesday, Wind Information showed. The overnight repo average increased to 3.0487% from the previous 3.0040%.

YUAN: The currency weakened to 6.4758 against the dollar from 6.4671 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 6.4845 today. This compares with the 6.4665 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 3.2550%, up from Wednesday's 3.2150%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 1.91% to 3,505.18, while the CSI300 index tumbled 2.73% to 5,377.14. The Hang Seng Index lost 2.55% to 28,550.77.

FROM THE PRESS: China's Liaoning province will merge 12 city commercial banks into a provincial-level bank to ensure sufficient capital and better governance, according to a statement posted on the central bank website.

China will strive to complete more than 70% of its three-year plan for reforming state-owned companies by the end of the year, according to a government statement following a meeting chaired by Vice Premier Liu He. SOEs should focus on improving efficiency and strengthen incentives for innovation so they can play a leading role in achieving technological self-reliance, as well as reduce corporate management levels and tighten supervision and shareholder responsibilities, the statement read.

The PBOC may inject liquidity through the contingent reserve arrangement (CRA) and the temporary liquidity facility (TLF) to curb surging funding rates before the Lunar New Year, China Securities Journal reported, citing Yang Yewei from Guosheng Securities. Funding rates have risen sharply on tight liquidity after net fund drains by the PBOC in the past week, the newspaper wrote. The PBOC may hope to avoid excessive rises in asset prices through controlling liquidity, the newspaper reported, citing analysts. The PBOC might also see decreasing cash demand due to pandemic control policies limiting the annual holiday migration, the newspaper said.

The China Banking and Insurance Regulatory Commission aims to improve its regulation of high-risk agencies, the regulator said after its annual work meeting on Wednesday. The CBIRC will curb monopolies and unguided capital expansion by fintech companies, while strengthening supervision over shadow banking, the statement stressed. The CBIRC will accelerate disposal of non-performing assets and strictly regulate high-risk institutions to stabilise the macro leverage ratio, the statement said.