MNI China Daily Summary: Friday, May 17

EXCLUSIVE: China is likely to file a WTO dispute against the U.S. over its move to hike tariffs on Chinese new energy products instead of tit-for-tat retaliation, policy advisors told MNI.

EXCLUSIVE: China’s reference lending rate is likely to remain unchanged in May as the central bank aims to steady the policy environment following the fall in market rates and as it pursues its mission to curb idle funds inside the financial system.

POLICY: Local governments must look at ongoing housing projects facing difficulty to deliver, either increasing financing support to ensure completion, or processing judicial disposal, said Dong Jianguo, vice minister of Housing and Urban-Rural Development at a press conference.

POLICY: China's consumption unexpectedly slowed to an over one year low despite the Qingming Festival in April, but industrial output grew, data released by the National Bureau of Statistics showed.

POLICY: The PBOC will introduce a re-lending tool to boost the struggling real estate sector and help ease the stockpile of newly built houses, Tao Ling, deputy-governor of the PBOC briefed reporters.

POLICY: The PBOC eliminated the nationwide policy floor for the interest rates on commercial mortgage loans for first-time and second-time home buyers, its latest effort to curb the real-estate downturn.

POLICY: Local governments can purchase some of the unsold commercial housing at reasonable prices to use as affordable housing, especially in cities with large inventory, said Vice Premier He Lifeng during a video conference, according to the state run Xinhua News Agency.

POLICY: China's April data showed domestic demand remains insufficient, while overall economic operations were stable and continuing the upward recovery, Liu Aihua, spokesperson for the National Bureau of Statistics said.

LIQUIDITY: The PBOC conducted CNY2 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led to no change to the liquidity after offsetting the CNY2 billion maturity today, according to Wind Information.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.8078% from 1.8009%, Wind Information showed. The overnight repo average decreased to 1.7106% from 1.7138%.

YUAN: The currency weakened to 7.2242 against the dollar from 7.2188 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 7.1045, compared with 7.1020 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.3400%, unchanged from 2.3400% at Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 1.01% to 3,154.03 while the CSI300 index increased 1.03% to 3,677.97. The Hang Seng Index was up 0.91% to 19,553.61.

FROM THE PRESS: Authorities could make a RRR cut in Q2 to adjust liquidity and prices in coordination with fiscal plans, according to Wu Chaoming, vice president of the Institute of Finance and Information Technology. However, officials will likely delay lowering interest rates even though economic conditions necessitate further cuts, Wu continued. Zhang Yiqun, a deputy director at the China Fiscal Society, said the government can alleviate fiscal fund pressure and buffer short-term debt repayment issues through issuing ultra-long-term special bonds. (Source: Securities Daily)

Supply and demand in the bond market is expected to return to equilibrium following the issuance of ultra-long-term special treasury bonds on Friday, according to the central bank-run newspaper Financial News. Long-term treasury bond yields have risen since end-April, as market confidence in the economic rebound and the bottoming out of low inflation increased, with the yield of the 30-year treasury standing above 2.5% again. The central bank’s treasury trades in future will also help to adjust market supply and demand, and help promote smooth yields, the newspaper said citing an unnamed source. The reasonable range for long-term treasury yields should be 2.5-3%, the newspaper cited a market source as saying. Previously, the hunt for long-term assets by some institutions had pushed the yields below 2.5%.

The China Securities Regulatory Commission has stepped up regulations on local bond issuance by asking its local bureaus to report on random inspections of bond business and stationing officers to different provinces for supervision, 21st Century Business Herald reported. Before 2022, bond issuance by local-government financing vehicles had many irregularities, such as using one project to issue bonds twice after “packing” under different names. Authorities will aim to uncover such issues, the newspaper said citing unnamed industry insiders.