MNI China Daily Summary: Wednesday, April 28

EXCLUSIVE: The People's Bank of China(PBOC) should increase holdings of China Government Bonds to help fill out the yield curve and make the securities more liquid, a former member of the central bank's monetary policy committee and current advisor to the Ministry of Finance told MNI, adding that public borrowing should also be rebalanced toward more short-term debt.

EXCLUSIVE: China must act against an alarming rise in household debt but still avoid a painful house price crash, a former People's Bank of China monetary policy advisor told MNI, pointing to a property tax, continued tight controls on mortgage lending, and boosting the home rental market as policy options.

LIQUIDITY: Liquidity conditions remained 'comfortable' across China's interbank market in April, helped by the PBOC continuing with its moderately loose policy, the latest MNI Liquidity Conditions Index shows. The Liquidity Condition Index rose for the first time in three months to 34.8 in April, up from 26.2 in March, with almost 70% of traders reporting "stable" conditions. The higher the index reading, the tighter liquidity appears to survey participants.

POLICY: Issuance of local government special-purpose bonds is expected to help raise about CNY5.5 trillion for infrastructure investment this year, but pressure from rolling over maturing debt may weigh on indebted local governments, according to a report by China Chengxin Credit Rating Company.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. This leaves liquidity unchanged given the maturity of CNY10 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.1600% from the close of 2.2087% on Tuesday, Wind Information showed. The overnight repo average fell to 1.7802% from the previous 1.7994%.

YUAN: The currency strengthened to 6.4847 against the dollar from 6.4860 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.4853, compared with the 6.4924 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.1900%, down from Tuesday's close of 3.1975%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.42% at 3,457.07, while the CSI300 index gained 0.56% to 5,119.24. Hang Seng Index edged up 0.45% to 29,071.34.

FROM THE PRESS: The Chinese yuan may fluctuate in both directions after gaining nearly 1,000 bps against the U.S. dollar in the past month as market views on the dollar index diverge, the China Securities Journal reported. Some observers see the dollar index weakening as supporting factors such as U.S. bond yield gains and the short-term impact of fiscal stimulus fade, while some believe the dollar will strengthen from mid-Q2 as the U.S. economic recovery outpaces Europe and Japan, the newspaper said. The yuan may still be supported by China's steady recovery and booming exports as overseas supply could still be interrupted by the resurgence of Covid-19, the Journal said.

The number of people travelling in China during the May 1-5 Labor Day holiday may reach a record 250 million, as hotel, airline and scenic site bookings have significantly exceeded the same period in 2019, Caixin reported citing data from the Ministry of Public Security. The online booking of plane tickets increased by 20-30% relative to 2019, before the pandemic, said Caixin. Long-distance travel has surged as pandemic restrictions have been lifted and organized tours promoted, Caixin said.

China's top banking regulator intends to guide banks to portion more loans, particularly long-term lending, to manufacturers, the Shanghai Securities News reported citing the China Banking and Insurance Regulatory Commission. The CBIRC also encourages banks to negotiate independently with small manufacturers to extend their loan repayment period. National commercial banks are encouraged to write off non-performing loans in the manufacturing sector, the newspaper said.