MNI China Daily Summary: Thursday, December 11

POLICY: China will maintain necessary fiscal expansion and prioritise stabilising economic growth and promoting price rebounds in monetary policy next year, Xinhua News Agency reported on Thursday following the conclusion of the Central Economic Work Conference.

POLICY: Beijing will focus on stabilising the real estate market with city-specific measures, while expanding domestic demand by boosting residential income and stabilising investment with increased funding support, Xinhua News Agency reported on Thursday, following the conclusion of the Central Economic Work Conference.

POLICY: Mexico's decision to raise import tariffs by up to 50% on countries without a trade agreement will significantly harm the interests of partners, including China, the Chinese Ministry of Commerce said in a statement.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY118.6 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY62.2 billion after offsetting maturities of CNY180.8 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4516% from 1.4521% previously, Wind Information showed. The overnight repo average decreased to 1.2768% from the previous 1.2882%. 

YUAN: The currency strengthened to 7.0580 against the dollar from the previous 7.0638. The PBOC set the dollar-yuan central parity rate lower at 7.0686, compared with 7.0753 set on Wednesday. The fixing was estimated at 7.0528 by a Bloomberg survey today.

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

STOCKS: The Shanghai Composite Index fell 0.70% to 3,873.32, while the CSI300 index decreased 0.86% to 4,552.18. The Hang Seng Index edged down 0.04% to 25,530.51.

FROM THE PRESS: China’s bond market extended its correction in early December, with the 10-year government bond yield rising to 1.872% on Dec 10, as real-estate credit stress and market rumours added to the pressure, driving up volatility and prompting broad net asset-value pullbacks across funds, Yicai noted. Zhong Engeng, a fund manager at Hang Seng Qianhai, attributed the sharp swings to fading expectations, rising uncertainty over policy direction, ambiguous regulatory signals and distorted institutional behaviour. Wu Bingyan, deputy general manager at Great Wall Fund, said the market lacked a clear anchor to either improving fundamentals or looser monetary policy, leaving institutions without a convincing trading framework. As year-end approaches, institutions are tightening their risk appetite, reducing positions and locking in returns, Wu added.

China’s national consumer price index rose 0.7% year-on-year in November, driven largely by food prices shifting from a decline to an increase, according to Dong Lijuan, chief statistician of the Urban Division at the National Bureau of Statistics. The producer price index continued to fall year-on-year, declining by 2.2% in November compared with a 2.1% drop in October, which Dong attributed to the higher comparison base from the same period last year. Dong noted that efforts to curb disorderly competition are showing results, with price declines narrowing across several industries. Year-on-year price drops narrowed by 3.8 percentage points in coal mining, by 2.0 pp in photovoltaic equipment and component manufacturing and by 0.7 pp in lithium battery manufacturing. (Source: 21st Century Business Herald)

Authorities should enable the yuan to appreciate to a reasonable level during the next Five-Year Plan period while guiding the market to view fundamentals-driven exchange-rate fluctuations rationally, according to Lian Ping, chairman of the China Chief Economists Forum. Lian said an appreciation would support the raising of the yuan’s share in global foreign exchange reserves, which some international institutions expect could increase to 10% to 15% over the next five to 10 years, surpassing the yen and the pound. He argues that the move could also accelerate technological innovation by lowering the cost of imported research-related technologies at a time when China remains heavily reliant on foreign supplies of semiconductors, precision instruments and aircraft engines. A stronger yuan would also reduce the cost of imported goods and raw materials, accelerate China’s rise as the world’s largest import market, and help narrow an excessively large trade surplus, thereby easing international economic frictions.