MNI China Daily Summary: Wednesday, October 27

EXCLUSIVE: The Chinese yuan should trade close to current levels against the dollar for the rest of the year after approaching a three-year high set in May, but the currency may come under pressure in early 2022 if exports lose steam and the economy fails to pick up, prompting central bank easing, policy advisors and trader told MNI.

EXCLUSIVE: A financing facility on an "impressive scale" for moves lowering carbon emissions is likely to be unveiled soon by the People's Bank of China as part of a green financing package to support the country's carbon neutrality efforts, Ma Jun, a senior green finance policy advisor to the central bank, told MNI.

LIQUIDITY: Condition in China's interbank eased in late October, soothed by the People's Bank of China's recent fund injections, the latest MNI Liquidity Conditions Index shows. The Liquidity Condition Index eased to 35.7 in October, falling from September's 13-month peak of 79.6, with 57.1% of the traders reporting improved condition. The higher the index reading, the tighter liquidity appears to survey participants.

LIQUIDITY: The PBOC injected CNY200 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operations lead to a net injection of CNY30 billion after offsetting the maturity of CNY100 billion reverse repos and CNY70 billion of Treasury's cash deposits at commercial banks today, according to Wind Information. The operation aims to offset the impact of tax season and the issuance of government bonds, so to keep month-end liquidity stable, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.2867% from the close of 2.2454% on Tuesday, Wind Information showed. The overnight repo average increased to 1.9196% from the previous 1.5433%.

YUAN: The currency weakened to 6.3934 against the dollar from 6.3812 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.3856, compared with the 6.3890 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.0175%, up from Thursday's close of 3.0127%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.98% at 3,562.31, while the CSI300 index fell 1.31% to 4,898.16. Hang Seng Index lost 1.57% to 25,628.74.

FROM THE PRESS: The Chinese yuan will fluctuate against the dollar based on two factors - a stronger U.S. dollar index limiting appreciation and an uncertain trend for global trade, the China Securities Journal reported citing Zhong Zhengsheng, chief economist of Ping An Securities. The yuan may face depreciation pressures in the mid-term, as China' moves to stabilise the economy and on a possibly narrower growth gap with the U.S. in 2022, the newspaper cited Zhong as saying. But in the long-term, the yuan's mid-level is still supported by the stability of China's economy and strong export competitiveness, the newspaper said citing Zhong.

China should maintain general fiscal and monetary expansion policies to stabilise growth amid a slowing economic recovery, according to an article written by Liu Yuanchun, vice president of Renmin University posted by Toutiao.com. China may have normalized its macroeconomic policies too early as it spent two quarters in the first half of this year focused on growth rates of fiscal spending and credit back to normal levels, said Liu. Meanwhile, investment faces a period of interruption due to a lack of projects and local governments' declining off-budget funds to promote investment given shrinking land sales amid a cooling housing market, Liu added.

Many banks in south China, east China and southwest China received verbal guidance from PBOC branches to ease real estate loan quotas from last week, the Economic Observer reported. But the guidance is seen as moderately fine-tuning as tougher regulations have led to weakening home sales, financing difficulties and debt repayment pressures for developers, the newspaper said citing Xie Yunliang, chief macro analyst at Minsheng Securities. In the future, the proportion of financial resources invested in the real estate sector will decrease accordingly, with more being invested in manufacturing, supporting technological innovation, and rural revitalization, the newspaper said.