MNI China Daily Summary: Tuesday, September 20

LPR: China's reference lending rate remained unchanged on Tuesday, according to a statement on the People's Bank of China (PBOC) website, which was in line with market expectations as the central bank kept a key policy rate steady last week. The Loan Prime Rate, based on the rate of PBOC’s Medium-term Lending Facility (MLF) and quotes submitted by 18 banks, remained at 3.65% for the one-year maturity and 4.3% for five years and above.

POLICY: The reference rate used to price Chinese mortgages is expected to be cut as soon as next month to help bolster the property market and economic recovery after both the one-year and five-year Loan Prime Rates were kept steady at their monthly pricing.

LIQUIDITY: The PBOC injected CNY2 billion via 7-day reverse repos and CNY24 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15% respectively. The operations led to a net injection of CNY24 billion after offsetting the maturity of CNY2 billion in reverse repos today, according to Wind Information. The operation aims to keep liquidity stable at quarter-end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.6626% from the close of 1.6730% on Friday, the last working day before the Mid-Autumn Festival, Wind Information showed. The overnight repo average rose to 1.4431% from the previous 1.4044%.

YUAN: The currency strengthened to 7.0131 against the U.S. dollar from the previous close of 7.0179. The PBOC set the dollar-yuan central parity rate higher at 6.9468, compared with 6.9396 set on Wednesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6550%, down from Friday's close of 2.6720%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.22% to 3,122.41, while the CSI300 index gained 0.12% to 3,932.84. Hong Kong's Hang Seng Index rallied 1.16% to 18,781.42.

FROM THE PRESS: China’s benchmark Loan Prime Rates could be cut following the reduction of deposit interest rates by some Chinese banks, the China Securities Journal reported citing analysts. The cost of funding for banks has declined sharply as the weighted average interest rate on deposits has dropped by about 18 bps since July, the newspaper said citing analysts. The 5-year LPR, which many lenders base their mortgage rates on, could be cut to help stabilise the property market, the newspaper cited analysts as saying. Both 1-year and 5-year LPRs were kept unchanged at 3.65% and 4.30% respectively in September.

China’s holdings of U.S. debt increased by USD2.2 billion in July, reversing seven consecutive months of reductions, the 21st Century Business Herald reported citing data from the U.S. Treasury Department. China’s total holdings rebounded to USD970 billion. Increased holdings of U.S. bonds can help stabilize China’s foreign exchange reserves amid the sharp rise in the U.S. Dollar Index and they are much safer than holding U.S. stocks, the newspaper said. China may have adjusted its investment strategy by increasing its holdings of short-term U.S. bonds as their yields are attractive compared to longer term yields given the inversion in the U.S. yield curve.

The U.S. Public Company Accounting Oversight Board began reviewing the audit documents of Chinese companies traded on U.S. stock markets on Monday, with the first batch of companies including internet giant Alibaba, NetEase, Baidu and JD.com, Yicai.com reported. More than 160 Chinese companies have been identified by the U.S. watchdog as not complying with U.S. auditing rules. The risk of Chinese stocks being delisted from U.S. exchanges has dropped to 50% from 95% in March after China and U.S. reached an audit agreement in August. A complete elimination of delisting risk could drive the price-earnings ratio of these Chinese stocks to increase by 11%, the newspaper said citing Goldman Sachs analysts. The entire process will take 8 to 10 weeks, and the results may be available in early December 2022.