MNI China Daily Summary: Wednesday, Dec 06

EXCLUSIVE: Beijing will likely offer to move some electric-vehicle production to the European Union as part of a long-term deal to avert a trade war, a key issue ahead of this week's China-EU summit, a Chinese policy advisor and international affairs experts have told MNI.

EXCLUSIVE: Iron ore prices have likely peaked and will require a substantial rebound in steel demand – such as from a turnaround in the construction sector – to rise further, while more government intervention via “window guidance” could also weigh on the market, policy advisors and market analysts told MNI.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY240 billion via 7-day reverse repo on Wednesday, with the rate unchanged at 1.80%. The operation has led to a net drain of CNY198 billion after offsetting the maturity of CNY438 billion reverse repos today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7849% from 1.8342%, Wind Information showed. The overnight repo average decreased to 1.6096% from 1.6944%.

YUAN: The currency weakened to 7.1571 to the dollar from 7.1420 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.1140, compared with 7.1127 set on Tuesday. The fixing was estimated at 7.1486 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.7000%, up from Tuesday's close of 2.6925%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 0.11% to 2,968.93 while the CSI300 index rose 0.16% to 3,399.60. The Hang Seng Index increased 0.83 at 16,463.26.

FROM THE PRESS: Moody's downgrade of China’s rating outlook over concerns about economic growth prospects and fiscal sustainability was unnecessary, according to officials from the Ministry of Finance. In an interview with 21st Century Business Herald, authorities emphasised China’s long-term fundamentals have not changed and will remain an important global economic growth engine in future. The ministry noted effects from the pandemic are beginning to fade and new growth drivers are taking effect.

Authorities have asked local governments to report their demand for refinancing bonds to roll over maturing statutory debts, with the scale of maturity expected to reach close to CNY3 trillion in 2024, 21st Century Business Herald reported citing unnamed local officials. The upper limit for refinancing in debt-laden provinces is set at 80%. Compared to past experience, about 86% of the due principal of local government bonds can be repaid by issuing refinancing bonds. This aims to properly control local debt risks in high-risk provinces by reducing their debt balance, the newspaper said.

China Bulk Merchandise Index fell by 1.5 percentage points to 101.3% in November from October, the second consecutive monthly drop, indicating insufficient upward momentum in demand, Securities Daily reported citing data by the China Logistics Information Center (CLIC). The commodity inventory sub-index rebounded for the second month to 101.7% to hit a nine-month high. Inventory pressure will continue to rise as the scope of construction shutdowns in the northern region expands as temperature drops over December, said CLIC Analyst Li Dawei. But limited room exists for price adjustments against the backdrop of favourable pro-growth policies and an expected decline in commodity supply, Li added.