MNI China Daily Summary: Monday, March 16

     POLICY: China has room for an "appropriate increase" in its deficits and

will introduce stronger policies to minimize the impact of the coronavirus

outbreak, said Mao Shengyong, a spokesman of the National Bureau of Statistics

said Monday. "The overall Chinese government debt level is relatively low, and

especially, some debt assets have good profitability," Mao added. China's budget

deficit ratio was set at 2.8% in March last year.

     POLICY: The People's Bank of China (PBOC) will further guide lending rates

lower to support the resumption of business, production and economic

development, Director of Monetary Policy Sun Guofeng said at a press briefing on

Sunday.

     DATA: China's consumption and investment saw the biggest falls on record in

the first two months, with both registering double-digit declines, as the

coronavirus outbreak shuttered businesses and froze travel across the country.

Retail sales slumped 20.5% y/y in the first two months, reversing the 8% gain in

Dec, underperforming the -1.7% forecast. Fixed-asset Investment tumbled 24.5%

y/y in Jan-Feb, compared to a 5.4% rise in 2019, and weaker than the -2.0%

median forecast. Industrial production slipped 13.5% y/y in Jan-Feb, after a

5.7% gain in Dec, missing the projected -3.0% and tumbling to the second lowest

on record. 

     LIQUIDITY: The PBOC injected CNY100 billion via one-year medium-term

lending facility (MLF) with the rate unchanged, according to a statement on the

PBOC website. The cut to selected banks' reserve requirement ratios by 0.5 to 1

percentage point announced last Friday also took effect today, releasing CNY550

billion in long-term funds. These operations injected net CNY650 billion as no

MLF matures today, according to the PBOC announcement.

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

institutions (DR007) fell to 1.9456% from Friday's close of 2.0644%, Wind

Information showed. The overnight repo average decreased to 1.2210% from the

previous 1.4064%.

     YUAN: The currency weakened to 6.9974 against the dollar from 6.9926 on

Friday. PBOC set the dollar-yuan central parity rate lower for the first time in

five trading days at 7.0018 on Monday, compared with Friday's 7.0033.

     BONDS: The yield on 10-year China Government Bond was last at 2.6675%, down

from the close of 2.6700% on Friday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index tumbled 3.40% to 2,789.25 after the

statistics authority releasing record plunges in economic indicators in the

first two months. Hang Seng Index plunged 4.03% to 23,063.57.

     FROM THE PRESS: The PBOC's cut in the required reserve-deposit rate was a

response to sluggish credit and lending provision by joint-stock commercial

banks, the Economic Information Daily reported citing Wang Yifeng, chief banking

analyst with Everbright Securities. Some joint-stock commercial banks downsized

their balance sheets last month and are facing pressure from decreasing interest

rate spreads with higher costs of liabilities, keeping them from lowering loan

interest rates, the newspaper cited Wang as saying.

     About $150 billion foreign capital may flow into the A-share and bond

markets this year, the Securities Daily reported citing Zhang Jun, chief analyst

with Morgan Stanley Huaxin Securities. Chinese bonds have higher interest rates

and more stable credit performance which continues to attract foreign inflows,

the newspaper cited Zhang as saying.

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

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