MNI China Daily Summary: Wednesday, December 29

LIQUIDITY: The People's Bank of China (PBOC) injected CNY200 billion via seven-day reverse repos with the rate unchanged at 2.2% on Wednesday. This operation has injected net CNY120 billion after offsetting the maturity of CNY10 billion repos and CNY70 billion of Treasury's cash deposits at commercial banks, according to Wind Information. The operation aims to maintain the liquidity stable towards year-end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.3650% from the close of 2.2870% on Thursday, Wind Information showed. The overnight repo average decreased to 1.2814% from the previous 1.5696%.

YUAN: The currency weakened to 6.3714 against the dollar from 6.3713 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.3735, compared with 6.3728 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8300%, down from Thursday's close of 2.8450%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.91% at 3,597.00, while the CSI300 index tumbled 1.46% to 4,883.48. Hang Seng Index lost 0.83% to 23,086.54.

FROM THE PRESS: The People’s Bank of China will issue a first batch of low-cost loans to financial institutions by the end of this year, to promote carbon emission reduction and clean coal use, Xinhua News Agency reported citing PBOC Governor Yi Gang. The PBOC can increase the quota for refinancing to small and micro enterprises as necessary, and the central bank will encourage banks to increase SME loans by offering 1% of newly added loans, the newspaper said. In terms of the Evergrande risks, it should be deal with market-based methods, clarify the responsibilities of shareholders and local governments, so to prudently resolve risks, Xinhua cited Yi as saying, noting that China’s financial risks are convergent and controllable.

New yuan loans in China should see a slight increase next year, reaching CNY21 trillion, as the central bank aims to boost credit growth to help stabilise the economy, the 21st Century Business Herald reported citing analysts. M2 growth may also accelerate from this year to around 8.7%, while the scale of total social financing around CNY34 trillion, the newspaper said citing Bank of Communications Financial Research Center. The tight credit environment for the real estate sector will be improved, while banks will lend to small and micro enterprises and support green development and technology innovation, the newspaper said.

China will accelerate fiscal spending and advance infrastructure projects in the first half of 2022, with a focus on safeguarding social security and employment as well as water projects, the Economic Information Daily reported citing Lian Ping, chief economist at Zhixin Investment Research Institute. The infrastructure-backed local government special bonds may rise to about CNY4 trillion next year, the daily said. Monetary policy should tilt to loosening with RRR cuts and structural tools to drive down the benchmark Loan Prime Rate, said Lian. The PBOC should release longer term liquidity to improve banks’ ability to purchase government bonds, while also increasing money supply to lower market interest rates, Lian said.