MNI China Daily Summary: Tuesday, November 17

POLICY: China could set the annual growth target at about 5% for the next five years as it effects the dual-circulation strategy, but the country faces many risks, including rising debt levels, de-industrialization, the security of its manufacturing chain and an aging population, policy advisors from the Chinese Academy of Social Sciences said at a briefing held by State Council Information Office today. The annual target is near China's potential growth rate of 5% to 6%, and takes into account factors such as the Covid-19 uncertainty and the possibility of higher growth due to reforms in recent years, said Li Xuesong, a deputy director of Institute of Industrial Economics of the Chinese Academy of Social Sciences.

POLICY: China should maintain a stable macro leverage ratio to balance growth and risk and allow for long-term economic expansion, the central bank's governor wrote in a policy analysis piece today, warning against overly stimulative policies and excessive reliance on bank debt financing, which he said could drive up the ratio. Yi Gang urged faster reform and greater transparency in the securities market to develop direct financing, especially equity financing, to better support the real economy. In the editorial that was later published on the bank's social media account, he said the financial sector should ensure ample liquidity and reasonable credit growth through countercyclical adjustments and provide targeted support to businesses producing essential goods and those worst hit during the pandemic.

POLICY: China will strengthen rules for corporate bonds issued by state-owned enterprises and set up an early warning system to track interest payments and help formulate risk-resolution plans, said Meng Wei, spokeswoman of the National Development and Reform Commission at a briefing today. Local authorities should identify default risks by screening and inspecting projects for which the bonds are issued, she said.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY50 billion via 7-day reverse repos with rates unchanged at 2.2%. This resulted in a net drain of CNY70 billion given the maturity of CNY120 billion of reverse repos today, according to Wind Information. The operations aim to maintain the liquidity in the banking system reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) declined to 2.1826% from close of 2.3821% on Monday, Wind Information showed. The overnight repo average fell to 1.7876% from the previous 2.2003%.

YUAN: The currency strengthened to 6.5580 against the dollar from 6.6144 on Monday. The PBOC set the dollar-yuan central parity rate lower at 6.5762, compared with the 6.6048 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 3.2800%, up from Monday's 3.2675%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 0.21% to 3,339.90, while the CSI300 index decreased by 0.19% to 4,894.79. Hang Seng Index gained 0.13% to 26,415.09.

FROM THE PRESS: The yuan may rise to 6 against the U.S. dollar in the medium term on the strength of China's better-than-expected recovery, extending a rally which started with a weakening dollar, the China Securities Journal reported citing Xie Yaxuan, chief analyst at China Merchants Securities. The appreciation will attract capital inflow, which pushes the currency higher, and this appreciation process may be more sustained, Xie said. The onshore yuan rose above 6.57 to the dollar in intraday trading yesterday, a new high for the current rally, the Journal noted.

Recent bond defaults in China are not enough to trigger a liquidity crisis as the PBOC pumped liquidity into the system and local governments intervened to quell the panic, the Shanghai Securities News reported citing Industrial Securities. Some high-risk bonds have started to rebound and there has been an across-the-board rise in government bond futures, the newspaper reported citing Wind data. Credit defaults may still lead to a repricing of credit risks and companies may face difficulties obtaining credit guarantees, so financing costs may become higher for some recipients, according to Industrial Securities.

China is prepared for any fresh attacks and harm launched by the Trump administration during the post-election U.S. government transition, the Global Times said in an editorial late Monday. Beijing will hit back if the U.S. and Taiwan collude to make a sudden and unacceptable move, the Times said. China has no reason to be afraid of any "final madness" as the Trump administration's extreme words and fault-picking on issues such as on China's human rights record have had no impact, the editorial said.