MNI China Daily Summary: Monday, September 22

POLICY: The People’s Bank of China will employ policy tools to ensure ample liquidity, lower financing costs, support consumption and the expansion of investment based on the need of the economy, Governor Pan Gongsheng told reporters.

POLICY: China will continue to manage its over-USD3.2 trillion of foreign exchange reserves to ensure the security, liquidity, preservation and appreciation of assets, State Administration of Foreign Exchange chief Zhu Hexin told a briefing.

POLICY: China's Loan Prime Rate held steady, in line with expectations, with more easing expected later in the year as the economy suffers stronger headwinds, according to a statement on the website of People’s Bank of China.

POLICY: China has set targets of around 4% annual value-added growth for the steel sector in 2025 and 2026, along with strict prohibitions on expanding production capacity, according to a two-year plan unveiled by the Ministry of Industry and Information Technology.

POLICY: China’s retail sales of services rose 5.1% y/y in the first eight months, easing slightly from 5.2% growth in January-July, the Ministry of Commerce, with the increase supported by strong summer demand for tourism and leisure sports.

LIQUIDITY: The PBOC conducted CNY240.5 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The PBOC conducted another CNY300 billion via 14-day reverse repos at bidding rates. The operation led to a net injection of CNY260.5 billion after offsetting maturities of CNY280 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4888% from 1.5096%, Wind Information showed. The overnight repo average decreased to 1.4277% from 1.4644%.

YUAN: The currency weakened to 7.1148 against the dollar from 7.1125 on Friday. The PBOC set the dollar-yuan central parity rate lower at 7.1106, compared with 7.1128 set on Friday. The fixing was estimated at 7.1157 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.8700%, up from the previous close of 1.8650%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index edged up 0.22% to 3,828.58 while the CSI300 index increased 0.46% to 4,522.61. The Hang Seng Index declined 0.76% to 26,344.14.

FROM THE PRESS: The People’s Bank of China’s Friday move to adjust the 14-day reverse repo operations to a fixed amount, interest rate tendering, and multiple price bidding system aimed at strengthening the status of the 7-day reverse repo rate as the policy interest rate, said Securities Daily in a commentary. Previously, the market regarded the 14-day reverse repo as a tool with policy attributes given its rate was fixed at the 7-day rate plus 15 basis points. Meanwhile, the operation time and scale will be determined based on liquidity management needs, offering the PBOC more flexibility and reflecting its refined control over liquidity injection, the newspaper said.

Weak demand is blunting the impact of measures to curb excessive competition, which have only lifted producer prices moderately, Guan Tao, global chief economist at BOCI China, wrote in an article published on Yicai.com. Guan urged authorities to step up efforts to support demand through job creation, investment expansion and timely policy adjustments. He suggested the government consider hiring college graduates who have been unemployed for several years to collect labour and consumption statistics, noting the youth jobless rate for those aged 16-24 rose 0.1 percentage point year-on-year to 18.9% in August, the highest since records began.

Listed companies will likely continue to move their deposits into wealth management products, with the scale reaching hundreds of billions of yuan in the next year, Yicai.com reported citing analysts. In the past year as of Sept 21, listed companies have announced a total CNY373.4 billion of entrusted wealth management, according to data by Choice Terminal. Currently, the one-year fixed deposit interest rate has dropped to 0.95%, while the average annualised yield of bank wealth management products has reached 2.12%, coupled with the general rise in major stock market indices, the newspaper said noting the significant yield gap. Investors are also increasingly adopting overseas wealth management through QDII and Southbound Connect, the newspaper added.