MNI China Daily Summary: Monday, October 20

EXCLUSIVE: China’s Loan Prime Rate is likely to be lowered following a possible 10-basis-point policy rate cut later this year, as the economy faces stronger headwinds and further U.S. Federal Reserve easing reduces external constraints. 

POLICY: China's Loan Prime Rate held steady, in line with expectations while the central bank holds the easing pace amid uncertainties from the economic slowdown and escalating China-U.S. trade tensions. According to a statement on the website of People’s Bank of China (PBOC), LPR remained unchanged at 3.0% for the one-year maturity and 3.5% for the five-year tenor and over.

DATA: The Chinese economy grew by 4.8% year-on-year in Q3, slowing by 0.4 percentage points from Q2 and bringing the accumulated GDP for the first three quarters to 5.2%, National Bureau of Statistics data showed. China’s fixed-asset investment growth fell by 0.5% y/y in the Jan–Sep period from the previous 0.5% gain, marking the slowest pace since Jul 2020 and missing the median forecast of 0.1%. Retail sales slowed for the fourth month by rising 3.0% y/y, down from August's 3.4%, in line with the 3.0% forecast but hitting the lowest since Dec 2024. Industrial output grew by 6.5% y/y to mark a three-month high, rising from August's 5.2% and beating the 5.0% forecast. 

LIQUIDITY: The PBOC conducted CNY189 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY64.8 billion after offsetting maturities of CNY253.8 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.4332% from 1.4085%, Wind Information showed. The overnight repo average decreased to 1.3140% from 1.3195%. 

YUAN: The currency strengthened to 7.1231 against the dollar from the previous 7.1265. The PBOC set the dollar-yuan central parity rate higher at 7.0973, compared with 7.0949 set on Friday. The fixing was estimated at 7.1329 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.8450%, up from the previous close of 1.8200%, according to Wind Information. 

STOCKS: The Shanghai Composite Index edged up 0.63% to 3,863.89, while the CSI300 index increased 0.53% to 4,538.22. The Hang Seng Index rallied 2.42% to 25,858.83. 

FROM THE PRESS: Freight rates from Shanghai Port to major U.S. destinations surged, with rates to the West Coast rising 31.9% to USD1,936 per 40-foot container (FEU) and to the East Coast up 16.4% to USD2,853, following U.S. President Donald Trump’s threat to impose additional tariffs from Nov 1, Yicai reported. Although Trump later softened his stance, some exporters accelerated shipments to avoid potential transport delays, while others became more cautious with new orders. Wang Sijie, vice president of Wanb Express Group, said exports to Europe and the U.S. have diverged sharply, with September shipments to the U.S. down 27%, marking the sixth straight month of contraction since April, while exports to Europe have emerged as the main driver of overall growth.

Despite global frustration with U.S. dollar dominance, the greenback’s position remains entrenched, according to Guan Tao, a former senior official at China’s State Administration of Foreign Exchange (SAFE). Guan said de-dollarization marked by sustained capital outflows was highly unlikely given the U.S. balance of payments was characterised by persistent trade deficits financed through capital inflows. “The world is still far from escaping the dollar trap, and discussions of de-dollarization should not be overstated,” Guan said.

China must maintain a medium-high growth rate of around 5% to reach the per capita GDP level of moderately developed countries, according to Huang Qunhui, member of the 14th National Committee of the Chinese People’s Political Consultative Conference, and researcher at the Chinese Academy of Social Sciences. Huang explained that a country’s potential growth rate naturally declines as it approaches full modernisation. Authorities must focus on promoting the advanced upgrading of industrial foundations and deepen the integration of technological and industrial innovation. To accelerate the deep transformation of traditional industries, Huang emphasised the importance of empowering key sectors with artificial intelligence.