MNI China Daily Summary: Wednesday, March 2

POLICY: China will not participate in financial sanctions against Russia and will maintain normal trade and financial cooperation, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC) said on Wednesday in a briefing to reporters. China disagrees with financial sanctions, particularly unilateral ones, which are “not good” and lack a legal basis, said Guo.

POLICY: Chinese lenders will enhance support to boost consumption and investment at a targeted pace while the economy faces headwinds, said Guo, also party chief of the People’s Bank of China (PBOC). Support will be targeted to small and medium-sized companies, rural revitalisation, technology and green growth and include migrant workers, noted Guo.

POLICY: China's monetary policy will remain prudent and flexible and increase credit expansion to counter external shocks and downward domestic pressures that will help keep the yuan stable, the PBOC said on its social media account. China has the ability and conditions to stabilise the economy and inflation even thought the overseas uncertainties have be intensified by the accelerated policy tightening pace of the main economies and the rising geopolitical risks, the central bank said.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.10% on Wednesday. The operation has led to a net drain of CNY190 billion after offsetting the maturity of CNY200 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.0078% from the close of 1.9855% on Tuesday, Wind Information showed. The overnight repo average rose to 1.8641% from the previous 1.7718%.

YUAN: The currency strengthened to 6.3107 against the dollar from 6.3127 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.3351 on Wednesday, compared with 6.3014 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8225%, up from 2.8175% of Tuesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.13% to 3,484.19, while the CSI300 lost 0.89% to 4,578.60. The Hong Kong's Hang Seng Index tumbled 1.84% to 22,343.92.

FROM THE PRESS: The yuan may not continue to appreciate should the Federal Reserve starts rate hike this month, despite its recent rally coming at a time when China's trade surplus is at a record high and global risk aversion rises on geopolitical conflicts, the Shanghai Securities News reported citing analysts. The strong foundation of the yuan will not fade away quickly in 2022, but may become more flexible in depreciation so to help balance the divergence between China-U.S. monetary policy, the newspaper said citing Zhong Zhengsheng, chief economist of Ping An Securities. Both onshore and offshore yuan reached the 6.31 mark against the U.S. dollar on Tuesday, with the intraday highs hitting 6.3048 and 6.3071 respectively, hitting new highs again since April 2018, the newspaper said.

Chinese local governments are expected to issue over CNY430 billion of special-purpose bonds in March to help advance infrastructure investment to stabilize economic growth, the China Securities Journal reported citing Gao Ruidong, chief economist at Everbright Securities. The issuance of such bonds has been significantly accelerated with a total of CNY877.5 billion sold in the first two months, the newspaper said. Among all, over CNY470 billion were invested in infrastructure projects mainly in the areas of municipal facilities, transportation, water conservancy and environmental protection, which largely increased compared to last Q4, the newspaper cited Gao as saying.

China will soon unveil the third batch of digital yuan pilot cities, likely to include Fuzhou, Xiamen, and Hangzhou cities, the Shanghai Securities News reported. The pace of opening personal digital yuan wallets has far exceeded expectations, jumping to 20.87 million from 26.1 billion in H2 2021, and the figure will significantly increase following the promotion in Winter Olympics, the newspaper said citing analysts. The pilot program is expected to expand to more cities, with fourth and fifth batch of pilot cities likely to follow, the newspaper cited analysts as saying.