MNI China Daily Summary: Friday, May 22

     BEIJING (MNI) - EXCLUSIVE: Trade conflict with the U.S. is likely to

increase yuan exchange rate volatility, but the People's Bank of China (PBOC)

will remain on guard against any build-up in expectations of one-way price moves

or of appreciation damaging to export competitiveness, a former senior official

from the State Administration of Foreign Exchange told MNI, calling for China to

diversify foreign reserves away from dollar assets.

     TOP NEWS: China refrained from its usual practice of setting a formal

growth target this year, citing the "great uncertainties" caused by the Covid-19

pandemic on the global economy, according to the annual report to the National

People's Congress (NPC) presented by Premier Li Keqiang today. The government

stressed that growth is still necessary to support its goals including ensuring

employment and eradicating poverty, Premier Li said. The fiscal deficit will

rise to more than 3.6% this year, Li's report read, as China will keep fiscal

policies "even more proactive and effective," increasing the deficit by CNY1

trillion yuan from last year and selling CNY1 trillion in special treasury

bonds, the report noted. The target was set at 2.8% last year.

     POLICY: China will allow special local government bonds issued to rise by

74.4% to CNY3.75 trillion this year in a major policy drive to boost

infrastructure investment and revive an already stalling economy stunted by the

Covid-19 pandemic. In addition to special bonds, China will further allocate

CNY600 billion to infrastructure investment. The proceedings will finance

infrastructure to beef up areas including public health, energy reserves and

waterworks, according to reports submitted to the NPC today.

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

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

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

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

institutions (DR007) rose to 1.5159% from Thursday's close 1.4214%, Wind

Information showed. The overnight repo average increased to 1.0937% from 1.0918%

on Thursday.

     YUAN: The currency weakened to 7.1395 against the dollar from Thursday's

close of 7.0998. PBOC set the dollar-yuan central parity rate higher at 7.0939,

up from the 7.0868 set on Thursday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.5775%,

down from Thursday's close of 2.6600, according to Wind Information.

     STOCKS: The Shanghai Composite Index lost 1.89% to 2,813.77. Hong Kong's

Hang Seng Index tumbled 5.56% to 22,930.14, after China submitted a security law

proposal for the city that has fanned fears of fresh protests.

     FROM THE PRESS: Foreign capital in China remains stable and no large-scale

outflow has occurred despite the coronavirus epidemic, said Zhang Yesui, the

spokesman of the NPC. The pandemic won't reverse globalization despite

short-term impact on global supply chain, according to Zhang.

     China should allow qualified private banks to issue perpetual bonds and

capital supplementary bonds, the Shanghai Securities News reported citing Guo

Xinming, president of the PBOC Nanjing Branch and an NPC delegate. Some banks

should be allowed to go public, adopt incentive mechanisms and employee stock

ownership plans, the newspaper cited Guo 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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