MNI China Daily Summary: Wednesday, November 5

EXCLUSIVE: The People’s Bank of China (PBOC) will increasingly rely on low-cost relending tools to encourage banks to expand financing for key sectors and support economic restructuring, with a particular focus on technology firms that struggle to secure credit from traditional lenders due to stricter collateral and asset-stability requirements, a prominent policy advisor and banking expert told MNI.

LIQUIDITY: The PBOC conducted CNY65.5 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY492.2 billion after offsetting maturities of CNY557.7 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.4378% from 1.4262%, Wind Information showed. The overnight repo average increased to 1.3151% from 1.3148%.

YUAN: The renminbi weakened to 7.1246 to the dollar from 7.1233 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.0901, compared with 7.0885 set on Tuesday. The fixing was estimated at 7.1328 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.7700%, up from Tuesday's close of 1.7650%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index was up 0.23% to 3,969.25, while the CSI300 index rose 0.19% to 4,627.26. The Hang Seng Index edged down 0.07% at 25,935.41.

FROM THE PRESS: China’s new value-added tax (VAT) rules on gold are expected to stimulate demand for on-exchange, non-physical investment products such as gold exchange-traded funds (ETFs), analysts told Yicai. Under the new policy, non-physical delivery gold trades remain exempt from VAT, making on-exchange gold ETFs and virtual gold products offered by banks largely unaffected. In contrast, gold jewellery and physical gold bars are expected to face increased cost pressures. Although individual purchases of gold jewellery are still classified as consumer goods and remain subject to a 13% VAT and a 5% consumption tax, the policy could indirectly drive up retail prices by raising the cost of raw materials throughout the supply chain. (Source: Yicai)

The PBOC recent resumption of bond trading operations is aimed at supporting the real economy, enhancing coordination between monetary and fiscal policies, injecting liquidity and stabilising market expectations, according to market analysts. Data released by the PBOC on Nov 4 showed its bond trading in October resulted in a net liquidity injection of 20 billion yuan. Ming Ming, chief economist at CITIC Securities, said this demonstrates the intention to maintain stable market liquidity and anchor expectations in the bond market. At the same time, the relatively modest scale indicates caution and will avoid pushing interest rates down too quickly. (Source: Yicai)

China's central bank's utilisation of the yuan under the bilateral local currency swap mechanism has steadily increased, accompanied by a notable rise in market recognition, according to Wang Youxin, director at the Bank of China Research Institute, following the recent PBOC and the Bank of Korea bilateral local currency swap renewal. He noted that the scope of swaps has gradually expanded beyond trade to encompass areas such as investment and financing, playing a constructive role in promoting the cross-border use of the renminbi. Going forward, China could further innovate its financial product system, broaden and deepen the offshore Yuan liquidity market, Wang added. (Source: Securities Daily)