MNI CHINA LIQUIDITY INDEX: Economic Outlook Dips In November

The MNI China Economy Condition Index dipped to 60.3 in November from October’s seven-month high of 69.2, with traders highlighting an uncertain outlook as retail sales improve but investment remains weak.

Some 20.5% of participants perceived economic conditions to be worsening, up from 17.9% the previous month, after retail sales growth hit a five-month high 7.6% y/y in October, but growth in fixed-asset investment slowed to 2.9% growth year-to-date versus the same months of 2022, the lowest since December 2020 and down from 3.1% during January-September.

“Consumption growth was up due to the holiday season, but persistent property market weakness remains a drag on drivers such as investment,” a Tianjin trader said.

TIGHT LIQUIDITY

The MNI China Liquidity Condition Index eased to a still-tight 56.4 in November from October’s nine month high of 62.8, as the People’s Bank of China injected liquidity after October’s squeeze, with 33.3% of traders reporting tighter liquidity, down from 46.2% previously.

Interest rates on negotiable certificates of deposit (NCDs) reached 3.06% last week, their first time above 3.0% this year, whilst the seven-day repo rate for depositary institutions (DR007) hit 2.18%, the highest since Oct 20, according to Choice data.

“November repo rates slid initially after the central bank made big injections, but then rose again once the PBOC drained excess liquidity back to try and stabilise conditions,” a trader from a commercial bank in Tianjin told MNI.

The PBOC conducted CNY1.45 trillion of MLF in November, injecting CNY600 billion after offsetting maturities of CNY850 billion, and drained a net CNY767 billion via open market operations as of Nov 27, MNI calculated.

Economists recently told MNI the PBOC largest liquidity injection since December 2016 will limit room for a previously-anticipated cut in banks’ reserve requirement ratios this year and that the central bank would need to make more significant MLF injections in December to address tight conditions. (See MNI PBOC WATCH: Major MLF Injection Lowers RRR Cut Possibility)

ECONOMY MIXED

The uneven recovery has led Beijing to adopt a stronger fiscal policy stance going into 2024, including the recent announcement of CYN1 trillion of treasury bonds to keep growth at over 5% next year. (See MNI: China Stimulus To Keep 2024 Growth Over 5%, Advisors Say)

Looking ahead, traders expect divergence between long- and short-term rates, with the 7-Day Repo Rate Index reaching 41.0 in November, down from 51.3 in October as 43.6% saw a decline, whilst the 10-year CGB Yield Index was 51.3, up from the previous 47.4, with 30.8% of local traders expecting the curve to rise.

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