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EXCLUSIVE: China will further ease monetary and fiscal policy to help the economy achieve a record-low target for growth of around 5.5% this year in the face of headwinds at home and abroad, policy advisors told MNI. China will “encounter many more risks and challenges” in 2022, Premier Li Keqiang said on Saturday in his annual work report at the opening of the fifth session of the 13th National People’s Congress, telling roughly 3,000 delegates that "policy tools in reserve should be promptly deployed to ensure stable economic performance”.
EXCLUSIVE: China's yuan could lose steam against the dollar as safe-haven sentiment grows for USD assets amid the accelerating Russia-Ukraine war and capital may flow out of China as financial markets move from the temporary shocks and turn to bet on the further recovery of the U.S economy in the second half of the year, a high-ranking policy advisor told MNI.
POLICY: Rising crude oil import costs and natural gas will have limited impact on China, as the country has diversified and secure energy supplies and a high proportion of long-term contracts signed, said Lian Weiliang, deputy director of the National Development and Reform Commission at a briefing on Monday. China will strive to increase production capacity, strengthen reserves, ensure supply and stabilise prices, said Lian, in response to a question on the impact of the escalating Russia-Ukraine war.
POLICY: China has set a lower deficit ratio this year to ensure its fiscal policies are sustainable, will disburse funds as early as possible to support growth, Minister of Finance Liu Kun said on the sideline of the National People’s Congress on Sunday. While the debt-to-GDP ratio was lowered by 0.4 pp to 2.8%, which will result in CNY200 billion less funding, the government also allocated normal budget funding of CNY1.27 trillion, 6.6 more times than last year, equivalent to raising the deficit ratio by 1 pp, Liu said to reporters.
DATA: China's foreign trade, rose in the first two months of the year, despite the high base effect as well as production-limit policies during the Winter Olympic Games, according to data released by the China General Administration of Customs. Exports increased 16.3% y/y in the first two months to USD544.7 billion, led by private sector shipments of mechanical and electronical items, Customs said. Imports rose 15.5% y/y to USD428.8 billion, with purchases of crude oil, natural gas and soybeans noted.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation has led to a net drain of CNY290 billion after offsetting the maturity of CNY300 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) rose to 2.0603% from 2.0351% on Friday, Wind Information showed. The overnight repo average increased to 2.0285% from the previous 1.8925%.
YUAN: The currency strengthened to 6.3183 against the dollar from 6.3189 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.3478, compared with 6.3288 set on Friday.
BONDS: The yield on 10-year China Government Bond was last at 2.8300%, up from Friday's close of 2.8275%, according to Wind Information.
STOCKS: The Shanghai Composite Index tumbled 2.17% to 3,372.86 while the CSI300 index fell 3.19% to 4,352.78. Hang Seng Index lost 3.87 to 21,057.63.
FROM THE PRESS: China should continue to cut rates and relieve the burden on the real economy in addition to tax and fee cuts, as the average interest rate on corporate loans fell by only 0.1 percentage points last year, the 21st Century Business Herald reported citing Yang Weimin, deputy director of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference. Loan interest rates for the household sector should also be further lowered to help boost consumption, while epidemic prevention measures should be more precise to promote the weak spending, along with more stimulus measures, Yang was cited as saying.
The People’s Bank of China is expected to enhance efforts to boost credit, reduce borrowing costs and prevent possible financial risks, the Shanghai Securities News reported Monday citing financial experts interpreting Premier Li Keqiang's work report delivered March 5. China's monetary policy will deploy both the overall and targeted tools to ensure ample liquidity and cheap funds, the newspaper said. China will also set up a financial stability guarantee fund to safeguard against systemic risks, it said.
China is expected to increase by over CNY2 trillion overall fiscal spending from last year, which is equivalent to raising the deficit-to-GDP ratio by one percentage point to about 3.8%, even though the government has set its 2022 target of budget deficit rate lower-than-expected at 2.8% on Saturday, wrote Guan Tao, global chief economist at BOC International China in an article published on Yicai.com. The CNY2 trillion will come from profits by SOE banks, wrote Guan. China needs major projects and government-led investments to drive private investment, Guan added.
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