MNI China Daily Summary: Friday, March 6

     BEIJING (MNI) - EXCLUSIVE: The yuan's recent strengthening against the U.S.

dollar should not continue for long, a Chinese policy advisor and a former forex

official told MNI, with the advisor adding that the People's Bank of China

(PBOC) would prefer to keep the exchange rate within the range of 6.9-7.1 to the

greenback. The central bank will want to avoid any significant yuan rally, said

Zhang Ping, deputy head of the National Institution for Finance and Development

under the Chinese Academy of Social Sciences. The central bank would prefer to

cap the currency's advance to 6.9, he said, speaking after both the onshore CNY

and the onshore CNH rates hit near six-week highs on Wednesday following the

Federal Reserve's emergency 50-basis-points rate cut to contain the impact of

coronavirus on the economy and markets.

     EXCLUSIVE: China's local government financing vehicles are likely to boost

overall bond issuance in 2020, perhaps diversifying into dollar bonds, as they

take advantage of ample liquidity levels to boost infrastructure investment in

response to the coronavirus-driven economic slowdown, policy advisors have told

MNI. "It's possible that the LGFVs will sell slightly more bonds this year ...

But the volume will not increase too much as the local governments still have

pressure to control their debts, "said Yan Se, an associate professor with

Peking University and chief economist at Founder Securities.

     REALITY CHECK: Although analysts see China's February consumer prices

backing off from the 8-year high seen in January, any slowdown could be limited

as food prices remain elevated with the agricultural sector struggling over

transportation issues as restrictions remain in place to slow the spread of

coronavirus. The cost of food items are seen rising, although perhaps at a

slower pace than in recent months, with pork and vegetable prices leading the

way higher, according to people interviewed for the MNI Reality Check.

     LIQUIDITY: The PBOC skipped open market operations for the 14th day,

leaving liquidity unchanged, according to Wind Information. Liquidity in the

banking system is reasonable and ample, PBOC said on its website.

     RATES: The seven-day weighted average interbank repo rate for depository

institutions (DR007) increased to 1.8928% from Thursday's close of 1.8906%, Wind

Information showed. The overnight repo average decreased to 1.3634% from 1.4447%

on Thursday.

     YUAN: The currency strengthened to 6.9400 against the dollar from

Thursday's close of 6.9425. PBOC set the dollar-yuan central parity rate lower

for a fifth trading day at 6.9337, compared with 6.9403 on Thursday, the

strongest level since Feb. 4, 2020.

     BONDS: The yield on 10-year China Government Bonds was last at 2.6625%,

down from Thursday's close of 2.7200, according to Wind Information.

     STOCKS: The Shanghai Composite Index tumbled 1.21% to 3,034.51, tracking

losses in overseas markets. Hong Kong's Hang Seng Index slipped 2.32% to

26,146.67.

     FROM THE PRESS: China's February CPI may be 5% y/y compared with 5.4% in

January, the Economic Information Daily reported citing analysts. The growth in

CPI may fall to 4.5% y/y in March with the resumption of economic activity, the

newspaper said citing Sun Binbin, chief economist with TF Securities.

     New yuan loans in February may range CNY800 billion to CNY1.3 trillion,

down from CNY3.34 trillion in January, the Economic Information Daily reported

citing Wang Yifeng, chief banking analyst at Everbright Securities. Banks'

short-term consumer loans, credit cards and home mortgages all declined since

the epidemic, with retail loans to remain sluggish until the epidemic abates,

the newspaper said citing Wang.

     Two cities in China cancelled newly-announced policies relaxing controls on

the real estate market hit by the epidemic, signally that the central government

is still keeping a tight grip on speculative activities in the property market,

the International Finance News reported citing Yan Yuejin, research director of

the Shanghai E-House Real Estate Research Institute. Authorities are cautious to

reverse tight controls on home buyers, although they are more likely to tweak

policies on developers, the newspaper cited Yan as saying.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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