MNI China Daily Summary: Tuesday, October 25

EXCLUSIVE: President Xi Jinping’s recruitment of loyalists to head China’s new generation of leaders could deliver faster policy making, but they face domestic and external challenges in pushing the reforms needed to carry out the Party’s “dual circulation” strategy that will accelerate once new heads of the central bank and financial regulators take office in March, MNI understands.

POLICY: The People’s Bank of China (PBOC) has eased controls on capital inflows as it steps up efforts to curb weakness in the yuan, which dropped to its lowest level against the U.S. dollar since early 2008. The central bank announced on its website that it had raised the macro-prudential adjustment parameter for cross-border financing of companies and financial institutions from 1 to 1.25. The PBOC said the change would "increase sources for the cross-border financing of companies and financial institutions." Analysts estimate the change will raise the ceiling on the outstanding cross-border financing quota by 25%.

LIQUIDITY: The PBOC injected CNY230 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net injection of CNY228 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to offset the impact of tax season and government bond issuance, and keep month-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.9195% from the close of 1.7077% on Monday, Wind Information showed. The overnight repo average rose to 1.7899% from the previous 1.4148%.

YUAN: The currency weakened to 7.3085 against the U.S. dollar from the previous close of 7.2610. The PBOC set the dollar-yuan central parity rate higher at 7.1668, compared with 7.1230 set on Monday.

BONDS: The yield on the 10-year China Government Bond was last at 2.7300%, up from Monday's close of 2.7175%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.04% to 2,976.28, while the CSI300 index lost 0.16% to 3,627.45. Hong Kong's Hang Seng Index fell 0.10% to 15,165.59.

FROM THE PRESS: The yuan may continue to fall until the end of the year as the U.S. Dollar Index is unlikely to retreat soon amid geopolitical turmoil, Yicai.com reported citing analysts. The People’s Bank of China is seeking to stabilise the currency by setting the central parity rate stronger, with traders saying the rate set by PBOC is over 1,000 points stronger than predicted by their models, Yicai said. Apart from the U.S. dollar, China’s exports are a key factor affecting the yuan. High-frequency data suggests exports may continue to slow in Q4, with container throughput at major ports falling by 9% in the first 10 days of October, the newspaper said citing Chang Jian, chief economist at Barclays China.

Both the central and local governments should seize the moment to further stabilise the economy, work together to achieve reasonable growth and strive for better results, Xinhua News Agency reported citing a State Council meeting chaired by Premier Li Keqiang. China should thoroughly implement pro-growth measures, focus on stabilising employment and prices, and ensure smooth transportation and logistics and stable energy supply, the meeting said.

China’s housing market has shown a weak recovery as the year-on-year decline in home sales from January to September narrowed, the 21st Century Business Herald reported. Transaction volumes are expected to increase month-on-month in Q4 as local governments keep loosening policy and developers continue with sales promotions, the newspaper said citing Chen Wenjing, head of market research at China Index Academy. Reducing the down-payment ratio, supporting the purchase of second homes, and relaxing restrictions on home purchase limits are required to support a further recovery, the newspaper said citing analysts.