MNI China Daily Summary: Friday, March 11

POLICY: China's increased fiscal spending this year and macroeconomic policies in place ensure that a 5.5% growth target can be realised, Premier Li Keqiang told the press on Friday at the conclusion of the annual National People's Congress. Li said setting what many consider a high GDP target is "ambitious." But he said by keeping a relatively lower 6% growth rate last year, China was able to reduce its deficit ratio, thus affording policy space for this year.

DATA: China's M2 money supply growth eased to 9.2% y/y in February, decelerating from January's near one-year high of 9.8%, underperforming the 9.6% forecast by market analysts, data by the People's Bank of China showed. New loans rose by CNY1.23 trillion, more than halving from January's record high of CNY3.98 trillion and short of the CNY1.45 trillion forecast. Aggregate financing, half the expected level, decelerated sharply to CNY1.19 trillion when compared to the previous CNY6.17 trillion, hitting the lowest since August 2021.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 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 2.1035% from the close of 2.0752% on Thursday, Wind Information showed. The overnight repo average rose to 2.0343% from the previous 2.0289%.

YUAN: The currency weakened to 6.3228 against the dollar from 6.3216 on Thursday. The PBOC set the dollar-yuan central parity rate high at 6.3306, compared with 6.3105 set on Thursday.

BONDS: The yield on the 10-year China Government Bond was last at 2.7850%, down from 2.8550% of Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.41% to 3,309.75, while the CSI300 gained 0.32% to 4,306.52. The Hong Kong's Hang Seng Index lost 1.61% to 20,553.79.

FROM THE PRESS: The escalating conflicts between Russia and Ukraine and the resulting higher commodity prices may fan inflation and reduce the People's Bank of China's policy space, Zhang Ming, a senior fellow at the Chinese Academy of Social Sciences. With the adjustments in global capital markets, foreign funds may also exit China’s stock markets, increasing volatility, Zhang said in his personal WeChat blogpost. The higher global commodity prices are likely to force the Federal Reserve to quicken its policy tightening, slowing global growth further and causing more volatility, Zhang said.

China may tighten controls over foreign exchange again if capital outflow increases following expected U.S. rate hikes, Beijing News reported citing Huang Yiping, a former monetary advisor at the People’s Bank of China and now a professor at Peking University. The expected rate hikes by the U.S. Federal Reserve may exert the same pressure on China as other emerging markets, including capital outflow, currency depreciation, rising rates and falling asset prices, Huang said. China still has policy space relative to other central banks grappling with inflation, including possible interest rate cuts, Huang was cited saying.

China’s move to double the yuan trading band for the ruble helps to better absorb the fluctuation of ruble-U.S. dollar pair and prevent arbitraging, Yicai.com reported citing Guan Tao, chief economist of Bank of China International. The currency pair will be allowed to trade 10% around the fixing rate for the first time, as the ruble continued to plummet against the dollar. Sino-Russian trade companies are facing greater currency risks and a wider trading brand allows them to reduce exchange risks, the newspaper said citing Tu Yonghong, deputy director of the International Monetary Institute, RUC.