MNI China Daily Summary: Wednesday, Nov 26

EXCLUSIVE: Chinese interbank traders have reduced expectations for further rate cuts in 2025, but believe the central bank will increase bond purchases to meet end-of-year liquidity demand, MNI’s China Money Market Index indicated.

EXCLUSIVE: Beijing is likely to front-load more than CNY2 trillion of next year’s local government bond quota soon to support the early launch of major construction projects under the 15th Five-Year Plan, advisors told MNI, noting the recent decline in fixed-asset investment is temporary and unlikely to derail the economy from meeting its 5% growth target.

EXCLUSIVE: Beijing’s latest policy package aimed at addressing a three-year decline in private investment will increase non-state participation, but the measures face obstacles at the local level, advisors told MNI, noting that long-term mechanisms are still needed to protect private assets and boost investor confidence.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY213.3 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY97.2 billion after offsetting maturities of CNY310.5 billion today, according to Wind Information

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.4744% from 1.4541%, Wind Information showed. The overnight repo average decreased to 1.3127% from 1.3180%.

YUAN: The currency strengthened to 7.0802 to the dollar from the previous 7.0938. The PBOC set the dollar-yuan central parity rate lower at 7.0796, compared with 7.0826 set on Tuesday. The fixing was estimated at 7.0859 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.8050%, up from the previous close of 1.7850%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 0.15% to 3,864.18, while the CSI300 index rose 0.61% to 4,517.63. The Hang Seng Index rallied 0.13% at 25,928.08.

FROM THE PRESS: The yuan will likely remain relatively strong in the short term but it is unlikely to appreciate rapidly to above 7.0 against the U.S. dollar by year-end, 21st Century Business Herald reported citing Wang Qing, analyst with Golden Credit Rating. The central parity rate of the yuan will continue to be relatively strong, and the economic fundamentals supported by ample additional policy space will also help, said Wang. Both the offshore and onshore yuan broke through the 7.09 mark on Tuesday, hitting new intraday highs in over a year.

Raising the consumption rate from 2024’s 39.6% level will require fiscal and tax system reforms, stabilization of the housing and capital markets, and urbanization of migrant workers, Yicai.com reported, citing Luo Zhiheng, dean of the Research Institute at Yuekai Securities. Authorities should promote a transformation of the value-added tax system from a production-based sharing rule to a consumption-based one, thereby incentivizing local governments to more actively boost consumption growth. Meanwhile, most of the 300 million migrant workers have been unable to migrate with their families, resulting in insufficient demand for services such as education and healthcare, and hindering the upgrading of major consumer goods, including home appliances and furniture, Luo noted.

China’s development of “new quality productive forces” are accelerating as indicated by value-added tax invoice data, Securities Daily reported. Sales revenue of high-tech service industry and high-tech manufacturing industry increased by 16.1% and 10.1% y/y in October, data by the State Taxation Administration showed. With the accelerated implementation of the "AI+" initiative, the sales revenue of integrated circuits, industrial robots, and drones increased by 32.5%, 41.7%, and 38.4% y/y.