MNI Daily Summary: Tuesday, February 2

POLICY: China and the U.S. should restore ties by resuming exchanges, managing differences, and working together on economic and trade issues as well as climate change, a top Chinese diplomat said today. The U.S. should not see China as a major strategic competitor or even as an opponent as China has never interfered in U.S. internal affairs or exported its development model or engaged in ideological confrontation, and has never sought to challenge or replace the U.S. or divide influence, said Yang Jiechi, director of the Office of the Foreign Affairs Commission of the CPC Central Committee at an online forum organized by the National Committee on U.S.-China Relations.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY80 billion via 7-day reverse repos with the rate unchanged today. This resulted in a net injection of CNY78 billion after the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to keep the liquidity in the banking system reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.2410% from Monday's close of 3.1656%, Wind Information showed. The overnight repo average fell to 2.2348% from 2.7533% on Monday.

YUAN: The currency strengthened to 6.4597 against the dollar from Monday's close of 6.4641. The PBOC set the dollar-yuan central parity rate higher at 6.4736 today. This compares with the 6.4623 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 3.2300%, up from Monday's close of 3.2225%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.81% to 3,533.68, while the CSI300 index rallied 1.54% to 5,501.09. The Hong Kong's Hang Seng Index increased 1.23% to 29,248.70.

FROM THE PRESS: The PBOC should increase liquidity injections to help meet shortages of around CNY1.85 trillion before the mid-February Chinese New Year, the China Securities Journal reported citing Ming Ming from CITIC Securities. The PBOC's CNY98 billion injection on Monday lowered interbank funding rates and rallied both the stock and bond markets, wrote the newspaper. Liquidity is not excessive despite easing measures, the newspaper reported citing Zhao Wei from KaiYuan Securities.

The PBOC conducted the highest monthly SLF injections in a year in January, totaling CNY37.67 billion, according to official data released on Monday. The SLFs included CNY11 billion overnight, CNY21.5 billion 7-day and CNY5.17 billion 1-month injections. The SLF rates gauge the upper limit of the interest rate corridor, and are conducive to smoothing the money market interest rates, the PBOC said in a statement on its website. Borrowing costs on overnight, 7-day and 1-month loans are 3.05%, 3.2% and 3.55%, respectively, it said. The PBOC has denied market rumors about a potential SLF rate hike and notified law enforcement of the rumors last week, MNI noted.

China should not yield on contentious issues such as Taiwan despite sending positive signals of cooperation on issues including pandemic containment, policy coordination and climate policy, the Global Times reported citing Lv Xiang, an expert in US studies with the Chinese Academy of Social Sciences in Beijing. China's cooperation with the Biden administration will only be possible if the new administration focuses on fixing bilateral ties, wrote the newspaper. Biden should avoid the influence of domestic conservative forces and seize opportunities to stop the country from declining further, the newspaper wrote citing Chinese experts.