MNI China Daily Summary: Tuesday, December 12

POLICY: China banks will continue to suffer narrower interest margin in 2024 as loan interest rates remain low, while funding costs stay high, and room exists for deposit rates to reduce further, according to Bank of China in its quarterly Economic and Financial Outlook report.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY414 billion via 7-day reverse repo, with the rate unchanged at 1.80%. The operation has led to a net injection of CNY204 billion after offsetting the maturity of CNY210 billion reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8812% from 1.8983%, Wind Information showed. The overnight repo average fell to 1.7474% from 1.7583%.

YUAN: The currency strengthened to 7.1744 against the dollar from 7.1770 on Monday. The PBOC set the dollar-yuan central parity rate higher at 7.1174 on Tuesday, compared with 7.1163 set on Monday. The fixing was estimated at 7.1762 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6700%, down from Monday's close of 2.6730%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.40% to 3,003.44, while the CSI300 gained 0.21% to 3,426.80. The Hang Seng Index rallied 1.07% to 16,374.50.

FROM THE PRESS: The PBOC will likely cut the interest rate and reserve requirement ratio in the first half of 2024 to boost domestic demand and resolve local debt risks, said Wang Qing, chief macro analyst at Golden Credit Rating. Wen Bin, chief economist at Minsheng Bank noted low prices and imported inflation pressure gave the PBOC room to cut alongside the expected narrow China-U.S. interest spread, should the Federal Reserve end rate hikes in mid-2024. The PBOC should guide banks to lower deposit interest rates moderately, reduce banks’ liability cost and drop the benchmark Loan Prime Rate by 5-10 bps in the near future, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co. (Source: China Securities Journal)

Pork prices will rise slightly in the short term after failing to increase during peak season as demand has not met supply, according to a report from CITIC Securities. Researchers at China Post Securities expect a limited pork-price rebound before the spring festival, but the industry will experience improved capacity balance in 2024 on a month-on-month basis. In a report from Bruck Research, analysts said market supply will decline after spring 2024 as the market consumes the fattened and frozen pig stockpiles. (Source: Yicai)

Consumption will drive economic growth in Q4 with economists predicting a 12.1% y/y increase in total retail sales for November, according to Yicai. The news outlet expects November industrial production to slow from the previous month, but grow 5% y/y due to low base effects. Economists predicted fixed-asset investment will grow 2.9%, unchanged from October. Overall, November’s data will show significant improvements from last year, but domestic demand remains insufficient and the foundation for economic recovery still needs consolidation, the economists noted. (Source: Yicai)