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Free AccessMNI China Daily Summary: Wednesday, December 7
EXCLUSIVE: China’s local governments are expected to issue more than CNY3 trillion in special bonds in 2023, with some of the funding backed by projects with marginal returns as debt-burdened cities and towns scramble to raise funds to support growth as once reliable land sale revenues have been squeezed, advisers and analysts said.
POLICY: China lifted its negative Covid-19 test requirements for cross-region travelers among the 10 new Covid management measures introduced on Wednesday, according to a statement released by National Health Commission on its website. Local authorities should limit the definition of high-risk areas to buildings, units and floors, and shall not arbitrarily expand the scope or adopt any form of temporary lockdown, the notice said.
POLICY: China will optimise Covid control measures, coordinate policy support and boost domestic demand to improve growth in 2023, according to a report of the latest Politburo meeting by Xinhua News Agency. Policymakers will focus on stabilising economic growth, employment and prices, while proactive fiscal policy should be strengthened and its effectiveness improved, and prudent monetary policy should be precise, noted the meeting chaired by President Xi Jinping on Tuesday.
DATA: China's exports fell for a second straight month in November, dropping 8.7% y/y and accelerating from October's 0.3% y/y decline due to Covid lockdowns, according to China Customs data released on Wednesday. November's decline was the biggest monthly drop since February 2020, but the print beat market expectations for a 4.2% y/y drop. Imports fell 10.6% y/y in November, sharply down from October's 0.7% y/y drop, and registering the lowest reading in 30 months.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY168 billion after offsetting the maturity of CNY170 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) rose to 1.6363% from the close of 1.6032% on Tuesday, Wind Information showed. The overnight repo average decreased to 1.0133% from the previous 1.0256%.
YUAN: The currency strengthened to 6.9790 against the dollar from 7.0009 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.9975, compared with 6.9746 set on Tuesday.
BONDS: The yield on the 10-year China Government Bond was last at 2.9075%, down from Tuesday's close of 2.9450%, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 0.40% at 3,199.62, while the CSI300 index decreased 0.25% to 3,958.44. The Hang Seng Index lost 3.22% to 18,814.82.
FROM THE PRESS: China’s inflation rate is expected to remain moderate, with economists’ median forecast for November CPI sitting at 1.65% y/y, compared to October’s 2.1% y/y, Yicai.com reported. The PPI is expected to decline 1.53% y/y in November compared to October's 1.3% y/y fall, Yicai said. Pork prices are the main driver of CPI, but core inflation - which excludes food and energy prices - remains tame below 1%, while PPI has fallen on lower prices for commodities such as crude oil, the newspaper said citing Xu Sitao, chief economist at Deloitte China. China’s stable inflation expectations will provide a suitable liquidity environment for stabilising economic growth, the newspaper said. China is set to release its November inflation data on Friday.
The recent measures taken to allow real-estate equity financing and merger activity by the China Securities Regulatory Commission (CSRC) will significantly improve credit risk in the sector, according to the Economic Information Daily. The latest measures constitute the final part of the “three arrows” support package to improve credit, bond and equity financing conditions for developers. Equity financing is beneficial compared to debt, as it doesn't carry repayment obligations and will improve the balance sheet without affecting the “three red lines”, the newspaper said. The “three arrows” will be help state-owned enterprises and high-quality private real estate enterprises, boosting industry confidence.
The rise and fall of the yuan depend on China’s economic fundamentals, and is not dependent on the strength of the U.S. dollar nor the China-U.S. interest rate spread, wrote Guan Tao, a former senior State Administration of Foreign Exchange official in a blog post. Though the market generally expects a better economic outlook next year, with some predicting a strong rebound in yuan, there will still be many uncertainties, said Guan. With external demand likely to weaken, relaxing Covid controls may not quickly lead to the rebound in consumption and investment given damage to balance sheets of companies and the household sector. It remains to be seen whether the property market can recover as expected amid declining social purchasing power and strong wait-and-see sentiment in the market, said Guan.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.