MNI China Daily Summary: Tuesday, January 31

DATA: China's Purchasing Managers' Index (PMI) rose to 50.1 in January, returning to expansion territory after three months as Covid controls were lifted and production activity gradually recovered, data from the National Bureau of Statistics on Tuesday showed.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY471 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net injection of CNY170 billion after offsetting the maturity of CNY301 billion reverse repos, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.1519% from 2.0666% on Monday, Wind Information showed. The overnight repo average increased to 2.0256% from the previous 1.4306%.

YUAN: The currency closed at 6.7517 against the dollar at 16:30pm Beijing time from 6.7514 on Monday. The PBOC set the dollar-yuan central parity rate lower at 6.7604, compared with 6.7626 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 2.8950%, down from Monday's close of 2.9125%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.42% to 3,255.67, while the CSI300 index was down 1.06% to 4156.86. The Hang Seng Index was down 1.03% to 21842.33.

FROM THE PRESS: Fiscal authorities should take measures to support people’s livelihood and counter the reduction in household income that has triggered increasing mortgage defaults, said Sheng Songcheng, previously head of the statistics and analysis department at the People’s Bank of China, in an article on China Business Network. Although real estate regulations have been relaxed and more bank loans have been offered to developers, the effects have yet to be seen at an obvious pace given the impact on incomes from the pandemic, he noted. Since China faces an uncertain Covid situation, additional fiscal support targeting household incomes should be made to boost the economy and stabilise the property market, Sheng pointed out.

China should not significantly expand the quota of local government special bonds as local authorities have suffered increasing pressures from debt repayments, Caixin Magazine reported citing experts. China's local government debt ratio - local government outstanding debt/ total fiscal revenue - is approaching or has reached the international red line of 120%, even though China government debt ratio - national outstanding debt/GDP - is lower than 60%, it said. The surging issuance of local government special bonds in recent years has increased debt risk, particularly for some governments in the middle and west regions. New debt interest repayments reached a record high of CNY192 billion last year, even though rates on debt issues dropped to 3.02% in 2022 from 3.89% in 2018.

Foreign capital will continue to flow into China’s A-share market this year as Chinese assets become more attractive as the economy bottoms out and global liquidity is expected to ease, China Securities Journal reported citing analysts. North-bound capital inflows reached a net of CNY131 billion so far in January, compared with a total of CNY90 billion for the whole 2022. The value of A-share market will further rise, boosted by the accelerating launch of supportive policies and the recovery in market confidence, analysts predicted.