MNI China Daily Summary: Monday, November 23

EXCLUSIVE: The world's biggest free trade deal will help China strengthen its Asian supply chains to rival western-led networks at a time of worsening relations with the U.S., policy advisors in Beijing told MNI. The Regional Comprehensive Economic Partnership will unify rules of origin and lower tariffs over 20 years for 15 countries from China to New Zealand, enabling China to offshore some lower-end manufacturing to cheaper locales in Southeast Asia as it moves up the value chain, advisors said.

POLICY: China should seek to work with the U.S. and the rest of the world to support WTO reform and multilateralism as it further opens up its economy to counter weak export demand, said Zhang Qi, head of the Foreign Economic Research at the Development Research Center of the State Council at a briefing today. Countries should set aside disputes and avoid taking extreme measures, she said. As part of the opening-up strategy, China will offer more autonomy to existing free trade zones and the Hainan Free Trade Port, Zhang said. It will also further improve intellectual property protection. China will also work closer with the EU, said Tian Jietang, deputy director of Innovations Department of the DRC.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY40 billion via 7-day reverse repos with rates unchanged at 2.2%. This resulted in a net drain of CNY10 billion given the maturity of CNY50 billion of Treasury deposits at commercial banks 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) fell to 2.1508% from Friday's close of 2.2063%, Wind Information showed. The overnight repo average declined to 1.8354% from the previous 1.9257%.

YUAN: The currency strengthened to 6.5694 against the dollar from 6.5714 on last Friday. The PBOC set the dollar-yuan central parity rate lower at 6.5719, compared with 6.5786 on Friday.

BONDS: The yield on 10-year China Government Bond was last at 3.2775%, down from Friday's 3.3150%, according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 1.09% to 3,414.49, while the CSI300 index gained by 1.25% to 5,005.03. Hang Seng Index edged up 0.13% to 26,486.20.

FROM THE PRESS: Chinese regulators must maintain order in debt markets with a "zero tolerance" approach and severely punish those who evade debt, issue debt with fraudulent information, misappropriate assets or misuse capital raised, according to a statement following a meeting of the Financial Stability and Development Committee. A statement from the committee, chaired by Vice Premier Liu He, was posted on the government website and addressed the recent increase in bond defaults, attributing them to "cyclical, systemic and behavioral factors". Regulators must observe laws and implement accountability, said the committee. The meeting is the highest-level government response so far following bond market turbulence this month after high-profile defaults by companies including Yongcheng Coal and Electricity Group, a company owned by the Henan government.

The PBOC is likely to keep liquidity ample to ensure a stable economic recovery and help banks control debt-servicing costs by renewing MLF and reverse repo purchases, the Shanghai Securities News said on Saturday, citing Yan Se, an economist from Founder Securities. While the central bank kept the November LPR unchanged, loan-servicing rates for businesses are likely to further decline, the newspaper said, citing analyst Wang Qing of Golden Credit Rating. Extraordinary policies introduced through the pandemic will only be withdrawn slowly over the next two years to avoid impacting the real economy, Yan said. However, there may be some adjustments to rates and liquidity should the first quarter next year see a significant improvement in economic indicators, and if demand for credit surges, the newspaper reported citing Yan.

China's local authorities must continue to tackle unemployment, create more jobs, help businesses and promote consumer spending, said Premier Li Keqiang in a video conference with local officials. Li's comments were cited in a statement on the government website on Sunday, and he went on to urge local governments to use public funding to encourage private investment and stabilise market expectations.