MNI China Press Digest Dec 11: Bonds, CPI, Yuan

Highlights from Chinese press reports on Thursday:

• 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 rumors 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 behavior. 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 approached, institutions are tightening risk appetite, reducing positions and locking in returns, Wu added.
• China’s national consumer price index (CPI) 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 (PPI) 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 at 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 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.