MNI China Daily Summary: Monday, December 29

EXCLUSIVE: China will expand consumer subsidies, supported by fiscal and monetary stimulus, early in 2026 in order to boost sluggish domestic demand and ensure the economy grows by the targeted 5% next year, sources close to policymakers told MNI.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY482.3 billion via seven-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY415 billion after offsetting maturities of CNY67.3 billion , according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.5944% from 1.5237%, Wind Information showed. The overnight repo average decreased to 1.2417% from 1.2556%. 

YUAN: The currency weakened to 7.0098 against the dollar from the previous 7.0085. The PBOC set the dollar-yuan central parity rate lower at 7.0331, compared with 7.0358 set on Friday. The fixing was estimated at 7.0049 by Bloomberg survey today. 

BONDS: The yield on 10-year China Government Bonds was last at 1.8575%, up from the previous close of 1.8325%, according to Wind Information. 

STOCKS: The Shanghai Composite Index edged up 0.04% to 3,965.28, while the CSI300 index decreased 0.38% to 4,639.37. The Hang Seng Index fell 0.71% to 25,635.23. 

FROM THE PRESS: The yuan will see continued two-way fluctuations and any one-way trend is unsustainable, China Securities Journal reported, citing analysts. The U.S. dollar index may rise in the future after the recent sharp fall amid expectations for Federal Reserve interest rate cuts in 2026. Meanwhile, the dollar index could rise passively should the euro and yen depreciate, which could also pressure the yuan, the newspaper said, citing Luo Zhiheng, chief economist of Yuekai Securities. The offshore yuan has fluctuated around the 7.0 level against the dollar after briefly breaking through 7.0 last Thursday.

China's authorities should further expand consumer subsidies from goods to services, analysts told Yicai.com after the Ministry of Finance confirmed that Beijing will continue with a trade-in scheme in 2026 with the scope and standards of subsidies being optimised. Yuan Haixia, president of the China Chengxin International Research Institute, noted the diminishing policy effectiveness as previous subsidies had already used up some of the demand for consumer goods. Yuan said it is necessary to increase consumption subsidies in the form of cash and digital currencies, as well as subsidies for childcare and employment.

Industrial profits are expected to stabilise and rebound in 2026, potentially achieving circa 10% growth by end-2026, mainly driven by a moderate price recovery, Yicai.com reported, citing Zhang Jingjing, chief macro analyst at China Merchants Securities. The metric grew by only 0.1% for the first eleven months, as the government’s “anti-involution” campaign has temporarily suppressed production and sales expansion of some industries, said Zhang Di, chief macro analyst at China Galaxy Securities.