MNI China Daily Summary: Wednesday, January 17

DATA: The Chinese economy grew by 5.2% y/y in Q4, in line with market expectations, bringing 2023 GDP to 5.2%, which ensures Beijing will meet its annual growth target of “around 5%", data released by the National Bureau of Statistics showed. Industrial production rose 6.8% y/y in December to mark the fastest expansion since June 2021 (8.3%), up from November's 6.6% and beating the 6.6% forecast. Consumption slowed last month with retail sales decelerating to 7.4% y/y from November's 10.1% gain, also underperforming the 8.0% expectation. Fixed-asset investment in 2023 registered a 3.0% y/y increase, rising slightly from the 2.9% growth over the Jan-Nov period and better than the 2.9% consensus.

POLICY: China will see a "moderate increase" in consumer prices during 2024, as the structural and temporary conditions causing negative CPI lessen, NBS Commissioner Kang Yi said at a press conference. Kang noted China's upcoming Spring Festival would increase food prices and the government would provide policy support to boost domestic demand.

PREVIEW: China’s reference lending rate will likely remain unchanged in January following the central bank’s decision to keep its key policy rate steady and the fall of lenders’ interest margin to record lows, economists told MNI. The loan prime rate (LPR), based on the rate of the People’s Bank of China (PBOC)’s medium-term lending facility (MLF) and quotes submitted by 18 banks, is expected to remain steady at 3.45% for the one-year maturity and 4.2% for the over five-year tenor on Monday.

LIQUIDITY: The PBOC conducted CNY547 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY527 billion reverse repos after offsetting CNY20 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.9840% from the close of 1.9591% on Tuesday, Wind Information showed. The overnight repo average rose to 1.8278% from 1.7456%.

YUAN: The currency weakened to 7.1966 against the dollar from 7.1838 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.1168, compared with 7.1134 set on Tuesday. The fixing was estimated at 7.1953 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.5100%, down from Tuesday's close of 2.5240%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index lost 2.09% to 2,833.62, while the CSI300 index fell 2.18% to 3,229.08. The Hang Seng Index tumbled 3.71% to 15,276.90.

FROM THE PRESS: China’s benchmark Loan Prime Rate may hold next Monday, as the PBOC kept the anchor rate of the MLF unchanged this week, Securities Daily reported citing analysts. Some banks are under great pressure on their net interest margins, with the 1.73% average net interest margin of commercial banks by end-Q3 lower than the “warning line” of 1.8% proposed by the Pricing Self-Regulatory Mechanism for Market Interest Rates. Despite major state-owned banks lowering their deposit rates last month, some small and medium-sized banks raised the rates to attract depositors instead. Lowering lending rates under this circumstance may be harmful to resolving the risks of smaller financial institutions, said Bian Quanshui, chief macro analyst at Western Securities. One-year LPR sits at 3.45%, with the five-year rate at 4.2%.

Foreign investors will likely continue to buy yuan bonds in the coming months, supported by the steady recovery of the Chinese economy and eased depreciation pressure of the yuan, Securities Times reported. Investors overseas have continued to increase net domestic bond holdings, with December recording a USD24.5 billion rise, a two-year high. Foreign investors increased their net holdings of yuan bonds by nearly CNY300 billion throughout 2023. They continued to hold China Government Bonds, bought policy bank deals and diversified their portfolio by holding interbank certificates of deposit.

Chinese Premier Li Qiang said on Tuesday the economy was open for business and highlighted its potential for foreign investment, while calling for strengthened global cooperation. Speaking at the 54th annual meeting of the World Economic Forum in Davos, he noted China had a large market with demand rapidly rising amid new urbanisation and green transformation, which will provide a broad space for world trade and investment growth. The world must increase macroeconomic policy coordination, safeguard multilateral trading and work together to create a non-discriminatory environment for science and technology development. (Source: Xinhua News Agency)