MNI China Daily Summary: Wednesday, January 13

EXCLUSIVE: The EU-China investment treaty forestalls the U.S. and Europe from joining forces to pressure Beijing on trade and is a stepping stone to more ambitious pacts, say policy advisors, who point to the inclusion of issues such as labor rights and subsidies as breakthroughs that can strengthen China's hand in future negotiations. While many concessions in the Comprehensive Agreement on Investment pact, including changes to joint venture requirements, overlap those Beijing has made elsewhere, "it is the first time China is writing down its pledge to provide greater market access in a legally binding international treaty," said Tu Xinquan, the dean of China Institute for WTO Studies at the University of International Business and Economics.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged on Tuesday. This resulted in a net drain of CNY8 billion given the maturity of CNY10 billion of reverse 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.

DATA: China's M2 money supply increased 10.1% y/y in December, slowing for a second straight month after the 10.7% y/y gain seen in November. Aggregate financing increased CNY1.72 trillion, compared with November's CNY2.13 trillion. The central bank lent CNY20.03 trillion to the real economy in 2020.

DATA: New loans totaled CNY1.26 trillion, shrank from the previous CNY1.43 trillion, basically in line with the forecast CNY1.24 trillion. New loans have grown CNY19.6 trillion in the year 2020, MNI calculated. Shadow banking transactions shrank by CNY737.5 billion, compared with the CNY204.4 billion reduction in November.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.9200% from the 1.8552% on Tuesday, Wind Information showed. The overnight repo average increased to 1.3946% from the previous 1.3325%.

YUAN: The currency slightly strengthened to 6.4659 against the dollar from 6.4670 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.4605 , comparing with the 6.4823 set on Tuesday.

BONDS: The yield on 10-year China Government Bond was last at 3.1725%, down from Tuesday's 3.1950%, according to Wind Information.

STOCKS: The Shanghai Composite Index dropped 0.27% to 3,598.65 while the CSI300 index declined by 0.33% to 5,577.97. Hang Seng Index dropped by 0.15% to 28,235.60.

FROM THE PRESS: The Chinese yuan may continue to stay strong as China keeps its normal monetary policy, including policy rates that increase the interest rate spreads against other countries which are maintaining negative or zero rates, said Li Yang, the head of National Institute for Finance and Development, a state-owned think tank. In a speech transcript carried by Sina.com, Li said that China was likely to see an increase in the flow of global capital entering its bond and stock markets. Chinese interest rates may trend lower in the years to come, narrowing the net interest margins of commercial banks. China should be more selective about inbound capital, and should require good environmental and credit standards, Li said.

The PBOC's CNY5 billion net OMO injection yesterday, an unusually small amount, was a gesture to the market that the central bank stands to supply more credit if needed, the China Securities Journal said. The central bank's normal starting amount of injection is CNY10 billion, and so far China's money market is well supplied with liquidity, the Journal said. However, liquidity may tighten in the days before the February Lunar New Year due to tax payments, maturing MLF and higher cash demand, according to the official securities newspaper.

Bond issuance and credit financing were the major drivers behind China's countercyclical efforts last year, while off-balance sheet financing such as entrusted and trusted loans declined, according to an article in Securities Daily. These drivers were evidence that the pandemic had not caused regulators to ease curbs, the Daily said. Yuan-denominated loans surged to CNY 19.63 trillion in 2020, up CNY 2.82 trillion from the previous year, while total new social financing recorded CNY 34.86 trillion, up CNY 9.19 trillion from 2019, the Daily reported citing PBOC data.