MNI China Daily Summary: Tuesday, October 21

EXCLUSIVE: The People’s Bank of China (PBOC) should adopt a more flexible and even aggressive approach to policy easing and strengthen the yuan’s global role to counter external uncertainties and sustain growth, while further liberalising the interest-rate system to reduce debt costs and support economic restructuring, advisors told MNI ahead of the release of China’s next Five-Year Plan.

POLICY: China’s exports of the rare earth magnets are projected to average around 4,100 metric tons per month in Q4, representing a 12% year-on-year decline, analysts from Shanghai Metals Market (SMM) wrote, citing a recent survey.

LIQUIDITY: The PBOC conducted CNY159.5 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY68.5 billion after offsetting maturities of CNY91 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.4433% from 1.4332%, Wind Information showed. The overnight repo average edged up to 1.3141% from 1.3140%.

YUAN: The currency strengthened to 7.1171 against the dollar from the previous 7.1231. The PBOC set the dollar-yuan central parity rate lower at 7.0930, compared with 7.0973 set on Monday. The fixing was estimated at 7.1219 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.8300%, down from the previous close of 1.8420%, according to chinamoney.com.cn. 

STOCKS: The Shanghai Composite Index rose by 1.36% to 3,916.33, while the CSI300 index was up 1.53% at 4,607.87. The Hang Seng Index gained 0.65% at 26,027.55.

FROM THE PRESS: China’s real estate market continues to undergo a deep adjustment with price concessions driving most transaction volumes, according to Yan Yuejin, deputy director at the E-House Real Estate Research Institute in Shanghai. Yan emphasised that policymakers must act to stabilise the market while maintaining that the long-term trend of gradual improvement remains intact. September data showed sales prices of newly built commercial residential properties fell month-on-month by 0.3%, 0.4%, and 0.4% in first, second and third-tier cities. Year-on-year, prices in first-tier cities dropped 0.7%, narrowing by 0.2 percentage points from the previous month. Li Yujia, chief researcher at the Guangdong Urban and Rural Planning Institute, said new home prices in the fourth quarter will face downward pressure as developers rush to meet annual sales targets. 

China’s economy will likely face mounting downward pressure in the fourth quarter, driven by a high comparison base, tariff uncertainties and the diminishing impact of earlier stimulus measures, according to Wu Chaoming, chief economist at Caitong Financial Holdings. To meet the full-year growth target of around 5%, Wu emphasised the need for stronger, targeted policy support aimed at stabilising investment and stimulating consumption, with the introduction of additional policy measures in the fourth quarter remaining a distinct possibility. Wu cautioned that the recovery in household consumption continues to face multiple headwinds as the combined effect of a high base and less multiplier efficiency further weakens existing replacement and upgrade programs. 

China’s moderately accommodative monetary policy stance should continue in Q4 to offset downward pressure on the economy and mitigate external uncertainties, said Li Chao, chief economist at Zheshang Securities. Li anticipated that by the end of the fourth quarter, the People’s Bank of China (PBOC) will implement a 50-basis-point reduction in the reserve requirement ratio (RRR) and a 10-basis-point interest rate cut. Wang Qing, chief macro analyst at Orient Securities, noted the impact of the U.S. high-tariff policy on global trade and China’s exports may become more pronounced in the fourth quarter. At the same time, slower investment and consumption growth have increased the urgency for stronger policy action. “Given these conditions, there remains room for additional cuts in policy rates and the LPR this year,” Wang said.