MNI China Daily Summary: Tuesday, April 04

EXCLUSIVE: The addition of legacy Chinese green bonds to the China- and EU-led Common Ground Taxonomy (CGT) will drive greater cross-border capital flows, according to a prominent policy advisor.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos, with the rates unchanged at 2.00%. The operation has led to a net drain of CNY276 billion after offsetting the maturity of CNY278 billion reverse repos today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.8605% from 1.8604% on Monday, Wind Information showed. The overnight repo average decreased to 1.1288% from the previous 1.2973%.

YUAN: The currency strengthened to 6.8802 against the dollar from 6.8905 on Monday. The People's Bank of China (PBOC) set the dollar-yuan central parity rate lower at 6.8699, compared with 6.8805 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 2.8800%, down from Monday's close of 2.8820%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.49% to 3,312.56, while the CSI300 index increased 0.31% to 4,103.11. The Hang Seng Index edged down 0.66% to 20,274.59.

FROM THE PRESS: Local governments issued CNY440 billion of refinancing bonds in Q1, a 73% increase over the same period last year, according to information released by the Ministry of Finance. According to analysts, the figure reflects borrowers' elevated desire to repay principal this year. About CNY1.36 trillion special use-of-proceeds bonds were issued, a 4.5% y/y increase and near 36% of the forecasted 2023 total. The bonds' proceeds are aimed at industrial park infrastructure (33%), social undertakings (19%), transportation infrastructure (16%), guaranteeing housing projects (15%), next generation infrastructure (0.8%) and new energy projects (0.2%). Borrowers will issue the majority of bonds by the end of Q3, according to Yicai.

Sentiment among China's savers decreased in Q1, with 58% noting they had saved more – down 3.8pp over Q4 2022, according to the Peoples’ Bank of China's Household Finance Survey. The results showed consumption was up, with 23.2% of respondents recording increased spending – a 0.5pp increase. According to Yicai, the results show Covid-19's impact on savings and consumption is not over. The employment perception index was also up 6.8pp to 39.9%, with 13.2% of residents reporting a positive job market, 45.6% marking it average and 41.2% of residents saying it was bad. For Q2 2023 house prices, 18.5% of survey participants expect an increase, 54.1% predict no change, while 14.4% said decrease and 13.1% were uncertain.

China's loan demand index increased 19pp to 78.4 in Q1 from Q4 2022 and 6.1pp above the same period last year, according to the The Peoples' Bank of China's Bankers Survey. Demand for loans increased in most major categories, with increases in manufacturing (11.6pp), infrastructure (10.4pp), retail (10.9pp) and real estate (11.6pp) above the previous quarter. Loans to large firms were up 10.3pp, while medium enterprises rose 11.8pp and small firms increased 14pp. On monetary policy, 37.2% of bankers said it was loose – down 0.8pp – while 61% said it was moderate, up 1pp.