MNI China Daily Summary: Wednesday, December 13

POLICY: China has considerable room for monetary and fiscal policy amid low prices and moderate central government debt levels, the state-run China Central Television reported citing Han Wenxiu, executive deputy director at the Office of the Central Financial and Economic Affairs Commission. China will strengthen macroeconomic control to maintain stability, said Han.

DATA: Banks extended CNY 1.09 trillion in new yuan loans in November, underperforming the CNY1.28 trillion expectation but marking a sharp rise from October's CNY738.4 billion, the People's Bank of China (PBOC) data showed. Total social financing increased by CNY2.45 trillion, rising from CNY1.85 trillion in October though slightly missing the market consensus of CNY2.54 trillion. M2 money supply decelerated for the ninth consecutive month to 10.0% y/y from October's 10.3%, remaining at the lowest level since March 2022 (9.7%), in line with the 10.0% estimate.

LIQUIDITY: The PBOC conducted CNY265 billion via 7-day reverse repo, with the rate unchanged at 1.80%. The operation has led to a net injection of CNY25 billion after offsetting the maturity of CNY240 billion reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8293% from the close of 1.8812% on Tuesday, Wind Information showed. The overnight repo average fell to 1.6238% from the previous 1.7474%.

YUAN: The currency weakened to 7.1836 against the dollar from 7.1744 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1126 on Wednesday, compared with 7.1174 set on Tuesday. The fixing was estimated at 7.1732 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.6575%, down from Tuesday's close of 2.6700%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 1.15% to 2,968.76, while the CSI300 index fell 1.67% to 3,369.61. The Hang Seng Index edged down 0.89% to 16,228.75.

FROM THE PRESS: The PBOC will likely cut interest rates and the reserve requirement ratio next year to keep the growth rate of M2 and social financing at a high level, while the Central Economic Work Conference indicated monetary policy will need to support the rebound of prices and the return to the potential growth level. The conference said in a statement Tuesday that “the scale of social financing and money supply should match with the expected goals of economic growth and price levels,” given that low prices this year have resulted in a large deviation between social financing growth and the nominal GDP growth. China’s current potential growth is about 5.5%, and the price target in recent years is circa 3%, which means the growth rate of social financial and M2 should be 8.5% or higher. (Source: 21st Century Business Herald)

The Central Economic Work Conference indicated next year’s fiscal stance remained unchanged and the deficit ratio could exceed 3% with the central government taking the lead, according to Luo Zhiheng, chief economist at Yue Kai Securities. Authorities will maintain positive fiscal policy to support the expansion of total demand and prevent economic and social risks, Luo added. Feng Qiaobin, deputy secretary-general at the China Finance Society said the conference emphasised the need to stabilise the macro economy next year, considering pandemic scar effects have not completely faded. (Source: Yicai)

China’s private sector should expand production overseas to diversify supply chains and allow the domestic economy to focus on high value-added and higher productivity services, according to Zhang Jun, director at the China Economic Research Center. This way, private firms can avoid overcrowding in the domestic market and adapt to the government’s move away from excessive reliance on investment towards promoting new driving forces. China should establish itself at the forefront of a new wave of multinational firms, Zhang added. (Source: Yicai)