MNI China Daily Summary: Tuesday, November 24

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY70 billion via 7-day reverse repos with rates unchanged at 2.2%. This resulted in a net injection of CNY20 billion given the maturity of CNY50 billion repos today, according to Wind Information. The operations aim to maintain the liquidity in the banking system at a reasonable and ample level, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.2940% from close of 2.1508% on Monday, Wind Information showed. The overnight repo average declined to 1.8132% from the previous 1.8356%.

YUAN: The currency weakened to 6.5761 against the dollar from 6.5694 on Monday. The PBOC set the dollar-yuan central parity rate higher at 6.5809, compared with the 6.5719 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 3.3050%, up from Monday's 3.2775%, according to Wind Information.

STOCKS: The Shanghai Composite Index declined 0.34% to 3,402.82, while the CSI300 index decreased by 0.61% to 4,974.29. Hang Seng Index gained 0.39% to 26,588.20.

FROM THE PRESS: The yuan's recent surge against the dollar shouldn't be considered excessive as its appreciation across multiple currencies is more representative of the strength of China's exports, the Economic Information Daily said. China needs to follow a more flexible exchange pricing system and allow for independent quotes from market participants. while also managing the risks brought by exchange rate movements, the Daily wrote. It said that China needed to attract more outside capital and increase the efficiency of cross-border resource allocations.China's recent corporate bond defaults should have a limited impact on the asset quality of banks, as these bonds account for only a small portion of banks' proprietary bond investments which are mainly issued by the government and policy lenders, the PBOC-run newspaper Financial News reported on Tuesday citing analysts. Corporate bonds on banks' balance sheets amount to about CNY6 trillion, about 3% of their total bond investments, and those off-balance sheet bonds are worth about CNY10 trillion, the newspaper said citing calculations by Zhongtai Securities.

The impact of a stronger yuan on exporters may be lowered through changing settlement currencies with purchasers and increasing the efficiency of upstream supply chains, Peng Bo, a researcher at the Chinese Academy of International Trade and Economic Cooperation, wrote in a commentary for the 21st Business Herald. The yuan's current round of gains is due to inelastic demand for essential goods exported from China as the pandemic halted production in other countries, wrote Peng. The cycle will likely end with the development and distribution of future COVID-19 vaccines, he said.

China's membership of the CPTPP could allow the country to participate in rebuilding the global industrial chain after the disruptions of the pandemic in addition to expanding export markets, YiCai reports. The tariff concession commitments among member countries would likely create competition for domestic enterprises under tariff policy protections, and force companies to improve their quality and efficiency, YiCai said.

China's recent corporate bond defaults should limited impact on the asset quality of banks, as these bonds account for only a small portion of banks' proprietary bond investments which are mainly issued by the government and policy lenders, the PBOC-run newspaper Financial News reported on Tuesday citing analysts. Corporate bonds on banks' balance sheets amount to about CNY6 trillion, about 3% of their total bond investments, and those off-balance sheet bonds are worth about CNY10 trillion, the newspaper said citing calculations by Zhongtai Securities.