MNI China Daily Summary: Wednesday, January 5

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via seven-day reverse repos with the rate unchanged at 2.2% on Wednesday. This operation has drained net CNY200 billion after offsetting the maturity of CNY210 billion reverse repos, 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 2.0162% from the close of 2.0168% on Tuesday, Wind Information showed. The overnight repo average fell to 1.7557% from the previous 1.8733%.

YUAN: The currency strengthened to 6.3677 against the dollar from 6.3745 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.3779, compared with 6.3794 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8440%, up from Tuesday's close of 2.8300%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 1.02% at 3,595.18, while the CSI300 index fell 1.01% to 4,868.12. Hang Seng Index tumbled 1.64% to 22,907.25.

FROM THE PRESS: The PBOC is expected to increase liquidity injection in the second half of January via reverse repos and medium-term lending facilities to fill a liquidity gap of about CNY2 trillion, the China Securities Journal reported citing analysts. The tighter liquidity this month is largely due to major tax collection at the beginning of the year, up to CNY700 billion of government bond issuance as well as residents’ increased cash demand before the Spring Festival in February, the newspaper said citing analysts. The PBOC is unlikely to cut reserve requirement ratios for the second month, the newspaper said.

China must stand against financial risks including those stemming from some real estate developers that expanded blindly, local government debt and bond market credit issues, the official Economic Daily said in an editorial. China is also under pressure from shrinking demand, supply impact and weakened outlook, it said. The financial markets' valuations face rising risks of correction, as the U.S. Federal Reserves begin to taper, causing more volatilities in global capital movement and exchange rates, said the daily.

China will support high-tech SMEs in several Free Trade Zones to independently borrow foreign debts, as well as pilot qualified foreign limited partners (QFLP) and qualified domestic limited partners (QDLP) in the areas to broaden companies’ cross-border financing channels, Xinhua News Agency reported citing the State Administration of Foreign Exchange. The new policy includes nine capital account reform measures, including steadily opening cross-border asset transfer business, and piloting integrated domestic and foreign currency fund pools for multinational companies, Xinhua said.