MNI China Daily Summary: Monday, July 11

POLICY: China could widen the fiscal deficits of the central and local governments to support small businesses as the country is suffering from pandemic curbs and soft overseas demand, said Lou Jiwei, former finance minister during the Caixin Summer Summit on Saturday. The central government can enhance fiscal transfer payments to local governments whose income is “insufficient”, he suggested.

POLICY: China's monetary policy should remain flexible and save ammunition as the country may suffer imported inflation in the medium term, and any easing via big rate cuts and liquidity injections should be cautious, said Hu Xiaolian, former official of the People’s Bank of China (PBOC) said on Saturday at Caixin Summer Summit.

POLICY: China’s prices may continue to expand at a quicker pace in the second half of the year amid imported inflation and higher pork prices, but it is unlikely to constrain monetary easing as annual CPI is seen well below the government-set 3% ceiling, said Sheng Songcheng, a former director of the Statistics and Analysis Department of the PBOC.

POLICY: The Hong Kong government will further explore the retail use of e-CNY and push cross-border payments of digital currencies in the process of the yuan’s internationalization, said HK leader John Lee on Saturday at Caixin Summer Summit.

DATA: China's M2 money supply growth quickened to 11.4% y/y in June from 11.1% in May, outpacing the 11.0% forecast by market analysts. It was the fastest rate of growth since November 2016, data released by the PBOC showed. New loans rebounded more than expected to CNY2.81 trillion, up from May's CNY1.89 billion, hitting a three-month high. Aggregate financing, also higher than the expected level, almost doubled to CNY5.17 trillion from the previous CNY2.79 trillion, hitting a five-month high.

LIQUIDITY: The PBOC injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY3 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) decreased to 1.5504% from 1.5542% on Friday, Wind Information showed. The overnight repo average rose to 1.2199% from the previous 1.2130%.

YUAN: The currency weakened to 6.7076 against the dollar from 6.7051 on Friday. The PBOC set the dollar-yuan central parity rate lower at 6.6960, compared with 6.7098 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.8175%, down from the previous close of 2.8375%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 1.27% to 3,313.58 while the CSI300 index fell 1.67% to 4,354.62. Hang Seng Index tumbled 2.77% to 21,124.20.

FROM THE PRESS: The scale of new yuan loans and aggregate finance in June may be higher than the levels of May and a year earlier as financing demand improved with the economy recovering, the China Securities Journal reported on the front page on Monday. June new loans may exceed May’s CNY1.89 trillion and last June’s CNY2.12 trillion, as June is traditionally a big month for new loans. A pickup in home sales in 30 major cities and auto consumption would help drive certain credit demand, the newspaper said citing analysts. Aggregate finance may be significantly higher than May’s CNY2.79 trillion and last June’s CNY3.67 trillion mainly due to the accelerated issuance of local government bonds, the Journal said citing analysts. M2 would maintain rapid double-digit growth in June, the newspaper said. China is set to release its June financial data this week.

Local governments should efficiently coordinate pandemic controls and economic and social development, and implement pro-growth policies to consolidate the economic recovery, said Premier Li Keqiang during his visit to Fujian province, Xinhua News Agency reported on Sunday. It is necessary to ensure the smooth flow of logistics in ports, avoid the backlog of goods, in order to reduce the cost of enterprises, said Li, adding that 70% of the country’s industrial output cannot be separated from imports.

Shanghai reported its first case of the new BA.5 sub-variant of Omicron on Sunday, after the highly infectious sub-variant was found in Xi'an and Beijing city last week, the 21st Century Business Herald reported citing the Shanghai’s health commission. The city added one high-risk area and 38 medium-risk areas on Sunday after more than 200 local positive cases were reported from July 3-9, the newspaper said. Another mega-city, Guangzhou, quickly carried out massive nucleic acid testing in five districts on Sunday, while Lanzhou, the largest city of Gansu province in Northwest China ordered one-week temporary control measures in four districts including home office and suspending offline entertainment and dine-in services starting Monday, the newspaper said.