MNI China Daily Summary: Tuesday, January 23

EXCLUSIVE: The People’s Bank of China (PBOC) could reduce its policy rates as soon as late Q1 or early Q2 should the economy continue to struggle, however, its recent injection of 7-day repo has lowered the likelihood of a reserve requirement ratio cut before Chinese New Year, economists and analysts told MNI.

EXCLUSIVE: China’s steel demand will rebound this year following an estimated 2.2% decline in 2023 should government policies reverse property-sector weakness and new growth drivers expand, however, exports will likely fall following last year's 35.6% increase, local analysts and traders told MNI.

POLICY: Chinese Premier Li Keqiang has called on authorities to support the capital market and introduce more long-term capital, after chairing a State Council meeting to review capital-market operation, Chinese state broadcaster CCTV reported citing analysts.

LIQUIDITY: The PBOC conducted CNY465 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The reverse repo operation has led to a net drain of CNY295 billion reverse repos after offsetting CNY760 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8386% from 1.8800%, Wind Information showed. The overnight repo average rose to 1.7630% from 1.7628%.

YUAN: The currency strengthened to 7.1695 against the dollar from the previous 7.1968. The PBOC set the dollar-yuan central parity rate higher at 7.1117, compared with 7.1105 set on Monday. The fixing was estimated at 7.2008 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.5039%, up from the previous close of 2.4940%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.53% to 2,770.98, while the CSI300 gained 0.40% to 3,231.93. The Hang Seng Index rallied 2.63% to 15,353.98.

FROM THE PRESS: The PBOC could still lower the LPR over March and April based on recent central bank statements, the current policy environment, and actual demand, according to Wen Bin, chief economist at Minsheng Bank. The PBOC has indicated structural tools will play a greater role by mentioning the term "optimising the supply of funds" and "improving the efficiency of fund utilisation" on multiple occasions, Wen added. Oriental Jincheng, a securities firm, noted authorities are more likely to implement a policy response now that the PMI index has run below 50 for more than three months. (Source: Yicai)

Authorities have expanded the scope of cities able to receive support under the “three projects” initiative, reducing the population threshold to 2 million from 3 million, and adding provincial capitals over 1 million, according to 21st Century Herald sources. The projects include the construction of affordable housing, urban villages, and "dual-use" public infrastructure. Authorities will use central budget investment, special bonds and the Pledged Supplementary Lending facility.

Policymakers can achieve 5% economic growth this year if they make efforts to stimulate domestic demand and expand investment this year, according to Xu Xianchun, former deputy director of the National Bureau of Statistics. Xu noted the economy will find it difficult to sustain 2023’s high consumption growth rate this year and therefore authorities must increase investment while ensuring the basic stability of international trade.