MNI China Daily Summary: Friday, March 3

EXCLUSIVE: The Chinese yuan is expected to be supported by the recovery in economic activity, but the possible renewed strength in the U.S. dollar risks pushing it above the closely watched 7 level and keeping the People’s Bank of China alert to any sharp moves in the currency, economists and traders told MNI.

POLICY: China will prioritise economic growth, boost domestic demand and accelerate the recovery of consumption this year, though the external situation is complicated, said Guo Weimin, spokesman for the first session of the 14th National Committee of the Chinese People's Political Consultative Conference in a briefing on Friday.

POLICY: People’s Bank of China Governor Yi Gang told a briefing on Friday that said he was satisfied with the current real interest rate and that a reduction in the reserve requirement ratio would be an effective way to inject liquidity, suggesting limited room for policy rate cuts and the possibility of a lower RRR depending on the economic outlook.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY18 billion of operations via 7-day reverse repos on Friday, with the rates unchanged at 2.00%. The operation led to a net drain of CNY452 billion after offsetting the maturity of CNY470 billion reverse repos today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.9245% from 1.9972%, Wind Information showed. The overnight repo average decreased to 1.2602% from the previous 1.5863%.

YUAN: The currency strengthened to 6.9002 against the dollar from 6.9086 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.9117 on Friday, compared with 6.8808 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.9140%, down from Thursday's close of 2.9220%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.54% to 3,328.39, while the CSI300 index rose 0.31% to 4,130.55. The Hang Seng Index was up 0.68% to 20,567.54.

FROM THE PRESS: China will further reduce its negative list for foreign investment and relax restrictions on investment access for overseas firms as it seeks to improve conditions for foreign direct investment, Wang Wentao, Minister of Commerce said. Speaking at a press conference, he said greater efforts would be made to retain and attract high quality foreign investment. For trade, traditional markets such as the United States, should be stabilised, and firms will be encouraged to travel overseas to promote exports. Boosting domestic consumption will also be key, with policies designed to improve confidence and restore vitality, he said.

More policies are needed to boost fertility and improve the workforce to ensure long term economic vitality, according to an editorial by Yicai.com. The paper said it is important to fully implement the three child policy, with more support needed for childbearing, including the issuance of childcare allowances and the strengthening of housing security support. To make better use of the existing stock of workers, China needs to strengthen the quality of basic education, and implement vocational skills training for workers at all stages of life. Chinese regulators expanded their pilot program of real estate investment trusts (REITs) to new energy and is expected to include water conservancy and new infrastructure projects soon, Securities Times reported on Friday. China Securities Regulatory Commission on Thursday approved two new energy REITs products whose underlying assets are wind power and photovoltaic power generation worth CNY10 billion. This move is a demonstration of how the scheme can play a leading role in revitalising relevant sectors, and provided a sample of assets that could be securitised, the newspaper said.