MNI China Daily Summary: Wednesday, November 9

EXCLUSIVE: Striking the right balance between pro-growth policies and Beijing’s Covid-Zero strategy will be crucial in delivering a recovery to restore confidence in China’s economy, curb capital outflows and support the yuan, former People’s Bank of China (PBOC) monetary policy committee member Yu Yongding told MNI.

DATA: China's October Consumer Price Index fell to a five-month low of 2.1% y/y, slowing sharply from September's 2.8% y/y pace as consumer demand declined after the Golden Week holiday, data from the National Bureau of Statistics released showed. The October CPI fell short of the median forecast for a 2.4% y/y rate, as a high base effect also helped steer down the pace of inflation more than expected. The producer price index eased for the 12th straight month to fall 1.3%, reversing the 0.9% gain in September, mainly due to the high base. The figure was better than the -1.6% forecast and hit the lowest level since November 2020.

LIQUIDITY: The PBOC injected CNY8 billion via 7-day reverse repos with the rates unchanged at 2.00%. The operation led to a net drain of CNY10 billion after offsetting the maturity of CNY18 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 1.8517% from the close of 1.8193% on Tuesday, Wind Information showed. The overnight repo average increased to 1.7969% from the previous 1.7458%.

YUAN: The currency strengthened to 7.2380 against the dollar from 7.2620 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.2189, compared with 7.2150 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6925%, up from Tuesday's close of 2.6800%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.53% at 3,048.17, while the CSI300 index fell 0.93% to 3,714.27. The Hang Seng Index lost 1.20% to 16,358.52.

FROM THE PRESS: China’s macro leverage (debt-to-GDP) ratio increased 0.8 percentage points to 273.9% in Q3, slower than the rise of 4.9 percentage points in Q2, as both the household and corporate sectors conservatively expanded debt, Yicai.com reported, citing a report by National Institution for Finance & Development. The leverage ratio of the household sector rose by 0.1 percentage points in Q3, as the growth rate of household debt dropped to a new low of 7.2% amid sluggish demand for housing mortgage and consumer loans. Companies still have limited willingness to raise funds, while the debt quota of local governments had been nearly fully used in the first half of the year. China should be alert to the risk of balance sheet recession and take measures to avoid the financial cycle peaking and falling too early, the report said.

Foreign direct investment in Shanghai fell 5.5% y/y to USD27.35 billion in the first three quarters, implying FDI across July to September was positive and a rebound from the 38.9% slump in the second quarter, Securities Daily reported. Foreign capital inflows in the pharmaceutical and new energy manufacturing increased significantly, more than doubling year-on-year, the newspaper said. Outbound direct investment (ODI) was USD7.03 billion in the first nine months, down 37.7% y/y, the newspaper added.

Local governments including Hefei, Fuzhou and Zhengzhou cities are trying to ensure the normal operation of construction activities amid Covid outbreaks, Yicai.com reported. The Hefei government said it is strictly forbidden to simply stop activity on construction sites in the name of Covid controls, and the payment of project deposits in Q4 can be deferred for one quarter, the newspaper said. The Zhengzhou government said it will control the outbreak in the industrial park that houses Foxconn Technology’s main plant to restore normal production as soon as possible, the newspaper said.