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EXCLUSIVE: Local governments in China face lower revenues from land sales that squeeze budgets and limit the ability to invest in infrastructure projects that are key to rebound from an expected slowdown in growth in Q4 and next year, advisors told MNI.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rates unchanged at 2.2%. The operation led to a net drain of CNY190 billion after offsetting the maturity of CNY200 billion reverse 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) increased to 2.1586% from Monday's close of 2.1146%, Wind Information showed. The overnight repo average rose to 2.1072% from 2.0331% on Monday.
YUAN: The currency strengthened to 6.3985 against the dollar from Monday's close of 6.4032. The PBOC set the dollar-yuan central parity rate lower at 6.4009, compared with the 6.4192 set on Monday.
BONDS: The yield on 10-year China Government Bonds was last at 2.9526%, down from Monday's close of 2.9700%, according to Wind Information.
STOCKS: The Shanghai Composite Index lost 1.10% to 3,505.63, while the CSI300 index fell 1.04% to 4,839.85. The Hong Kong's Hang Seng Index decreased 0.22% to 25,099.67.
FROM THE PRESS: The PBOC will flexibly use medium-term lending facilities, open market operations and other tools to inject liquidity with different maturities to ensure the CNY2 trillion gaps in November are "smoothened over," the Securities Times said. A total of CNY1 trillion reverse repos are maturing this week, and another CNY1 trillion MLF will come due in the second half of November, the official securities newspaper said, noting that the overall scale of local government bond issuance is close to CNY900 billion in November. Though the PBOC is less likely to cut RRR, it may roll over maturing MLF and increase reverse repos, the newspaper said. Increased fiscal spending by yearend is expected to release CNY1.89 trillion and CNY3.81 trillion to the inter-bank market in November and December, respectively, which can fully cover the impact of gov bond issuance, the newspaper said.
China's issuance of local government special bonds to fund infrastructure projects may surge in November to over CNY700 billion, the Economic Information Daily reported citing industry estimates. Funds raised from new local government special bonds have mostly supported new projects since H2, with over 40% invested in transportation and urban facilities, which helps drive investments and stabilize the economy, the daily said. As the economic effect may take one or two quarters, the stimulus impact may register in Q4 or early next year, the newspaper said citing analysts.
China needs to increase economic and financial supervision and risk-prevention capacities to better manage the expected inflow into its bond market, the Economic Daily said in an editorial. The inclusion of China's sovereigns into the FTSE World Government Bond Index concluded China's acceptance by all top three global bond indices, a nod to China's measures to reform its bond market, said the official newspaper. The WGBI is followed by larger and more influential funds, so more capital is expected to flow into China, it said. China should enhance monetary policy coordination and macroprudential framework, including the supervision of its foreign exchange markets, the daily said.
Residents in Beijing are told by the authorities not to leave the city unless necessary and those traveling should postpone returning after new Covid-19 cases are reported, the Global Times reported citing the Beijing Health Commission. New cases have been reported by at least 16 provincial areas in China so far, the newspaper said. Some analysts believe that the measures are to ensure the safety of the 2022 Winter Olympics, the newspaper added.
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