MNI China Daily Summary: Tuesday, January 18

POLICY: The People’s Bank of China will cut the reserve requirement ratio when necessary and the benchmark loan prime rate will reflect market rate changes at a timely and sufficient pace, officials of the central bank told reporters on Tuesday. Liu Guoqiang, vice governor of the PBOC, said the RRR, averaging 8.4% at present, is not high, but there is still space for further cuts according to financial and economic situation, noting the central bank will make every effort to open up its toolkits to support the economy and avoid any possible “collapse of credit ”.

POLICY: China and the U.S. should build an economic “recoupling” system separated from politics and end the trade and tech war, as decoupling intensify an economic transition to high technologies, according to a report published by the Chongyang Institute for Finance Studies, Renmin University on Tuesday.

LIQUIDITY: The PBOC injected CNY100 billion via 7-day reverse repos with the rate unchanged at 2.1%. The operation has led to a net injected of CNY90 billion after offsetting the maturity of CNY10 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.0719% from the close of 2.1660% on Monday, Wind Information showed. The overnight repo average fell to 1.9225% from the previous 2.0863%.

YUAN: The currency weakened to 6.3513 against the dollar from Monday's close of 6.3466. The PBOC set the dollar-yuan central parity rate lower at 6.3521, compared with 6.3599 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7800%, down from Monday's close of 2.8325%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.80% to 3,569.91, while the CSI300 index rose 0.97% to 4,813.35. The Hong Kong's Hang Seng Index decreased 0.43% to 24,112.78.

FROM THE PRESS: The People's Bank of China may cut by 10 bps its 1-year and 5-year Loan Prime Rates on Jan. 20, a stronger easing signal than a 10-bps cut to 1-year LPR alone in December, China.com.cn reported citing Wen Bin, the chief researcher at China Minsheng Bank. The reduction in loan references became expected by the market after the central bank on Monday cut both the 7-day reverse repo rate, a short-term interbank borrowing reference, and the 1-year medium-term lending facilities (MLF). The expected move will implement policymakers’ call for urgent countermeasures to arrest the current slowdown, which must rely on investments, it said. Thursday’s reduction in 5-year LPR will help lower medium-to-long term loan costs, which fund major infrastructure investments, the report said citing Zeng Gang, the deputy director of the National Institution for Finance & Development.

China’s economy, currently at its slowest, should begin to rebound in H2 after stabilizing in Q2, helped by the slew of monetary and fiscal policies that have been introduced, Sheng Songcheng, a former director of the statistics department at the People's Bank of China, told China National Radio after the central bank on Monday cut both medium and short-term loan benchmarks. China should introduce more forceful countercyclical measures, including rate cuts, before March, when the Federal Reserve probably begins rate hike, expected to pressure the yuan and draw capital away from China markets, Sheng said.

China’s property investments may shrink by as much as 10% in 2022, dragging down overall growth, Yicai.com reported citing a research organization it didn’t identify. Including development, construction materials and all other segments, the property account for 20% of the country’s GDP, Yicai said. Should the total property investment decline by 8% this year, it can shave 2.7 percentage points off overall growth, given the effect of declining wealth and fiscal revenues, etc., Yicai said. The situation will worsen from last year, when the property sector still contributed to 0.4 pp growth in full-year GDP despite a rapid slowdown in H2, the news site said citing official data.