This daily digest focuses on Yuan rates, major Chinese economic data, market sentiment, new developments in China’s foreign exchange policies, changes in financial market regulations, as well as market news typically available only in Chinese-language sources.

– Yuan gained against a basket of currencies despite losses against the U.S. Dollar last week.

– “Maintaining stability while seeking progress” has been set as China’s main theme for 2017.

Yuan Rates

– The Chinese currency gained against a basket of currencies last week despite losses against the U.S. Dollar. While the Yuan weakened -0.77% onshore and -0.56% offshore against the Dollar, all three Yuan indexes increased over the same span of time. The CFETS Yuan Index, BIS Yuan Index and SDR Yuan Index rose +0.31%, +0.48% and +0.38% respectively.

Data downloaded from Bloomberg; chart prepared by Renee Mu.

At the same time, both onshore and offshore Yuan borrowing costs remained elevated, although for different reasons.

In the onshore market, the PBOC has been injecting cash in the effort to meet the liquidity need. On Monday, the Central Bank added a net of 65 billion Yuan through reverse repos; however, Yuan funding costs from overnight to 1 year in Shanghai interbank market continued to climb up. In specific, 1-month and 3-month SHIBOR hit the highest levels since July 2015; 1-month SHIBOR has increased for 28 trading days in a row and 3-month SHIBOR rose for 43 consecutive trading days.

While the onshore tightening is mostly resulted from increasing demand in liquidity, the offshore uneased condition is more likely led by intended cuts in supply. The overnight HIBOR remained at 10.00%, which makes it relatively expensive to short the Yuan.

Market News

Sina News: China’s most important online media source, similar to CNN in the US. They also own a Chinese version of Twitter, called Weibo, with around 200 million active users monthly.

– Chinese top policymakers have set strategies for the economy in 2017 at the annual Central Economic Work Conference held last week. Here are the highlights and analysis: