MNI China Daily Summary: Wednesday, November 1

DATA: China's Caixin manufacturing PMI declined by 1.1 points to register 49.5 in October from September, falling into the contraction zone below the breakeven 50 mark, as demand expanded slowly while supply contracted, the financial publisher said.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY391 billion via 7-day reverse repo, with the rate unchanged at 1.80%. The operation has led to a net drain of CNY109 billion after offsetting the maturity of CNY500 billion reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.9361% from the close of 2.0765% on Tuesday, Wind Information showed. The overnight repo average fell to 1.7922% from the previous 1.8597%.

YUAN: The currency weakened to 7.3187 against the dollar from 7.3176 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1778, compared with 7.1779 set on Tuesday. The fixing was estimated at 7.3295 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.7075%, down from Tuesday's close of 2.7100%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.14% to 3,023.08, while the CSI300 index decreased 0.04% to 3,571.03. The Hang Seng Index edged down 0.06% to 17,101.78.

FROM THE PRESS: The Central Financial Work Conference’s latest statement to optimise the debt structure of central and local governments may lead to increased borrowing by the central government in future to reduce the debt burden of local governments. The central debt balance was about CNY25.9 trillion at the end of 2022, significantly lower than that of local debt, which was about CNY35.1 trillion. The conference also emphasised the establishment of a long-term mechanism to prevent and resolve local debt risks. This includes accountability for raising local debt, as local officials must audit it when they leave office and will be held accountable should any problems arise, said Wen Laicheng, professor at the Central University of Finance and Economics. (Source: Yicai)

Authorities are expected to cut the reserve requirement ratio (RRR) of large and medium-sized banks by 50bp in Q4 to release more than CNY1 trillion of liquidity to accommodate additional bond supply, according to Ding Shuang, chief economist at Standard Chartered Greater China and North Asia. Wang Qiangsong, head of research at Nanyin Bank expects the short-term bond market to remain volatile in Q4 as the economy improves slowly and the government provides stronger fiscal support. A trader said major banks typically stop lending funds at month end, which has contributed to recent tight conditions. (Source: 21st Century Herald)

Authorities need to implement further fiscal stimulus to address low enterprise production and investment given October’s declining PMI data, according to experts interviewed by 21st Century Herald. Zhang Liqun, an analyst at the China Federation of Logistics and Purchasing, said the recent issuance of government treasury bonds to support infrastructure construction will drive an increase in corporate orders through government investment, which will play a positive role in boosting domestic demand. Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank said October’s decline was due to seasonal factors and sluggish real-estate performance, which meant manufacturing companies remained cautious when making new procurement and investment decisions.