MNI China Daily Summary: Monday, March 18

DATA: Retail sales decelerating to 5.5% y/y in the first two months from December's 7.4% gain, though outperforming the expected 5.0%. Fixed-asset investment over the Jan-Feb period registered a 4.2% y/y increase, rising from the 3.0% growth in 2023 and better than the 3.4% consensus. Industrial production rose 7.0% y/y, up from December's 6.8% and beating the 5.1% forecast. The National Bureau of Statistics traditionally combines data released for the first two months to rule out the impact of Chinese New Year.

POLICY: The property sector remains in the process of adjustment and transformation given January and February data results, Liu Aihua, spokesperson for the National Bureau of Statistics said. China’s real-estate investment fell 9% y/y during the first two months of the year following the previous 9.6% decrease.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY10 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led no change to the liquidity after offsetting CNY10 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8789% from the previous 1.8961%, Wind Information showed. The overnight repo average decreased to 1.7509% from the previous 1.7639%.

YUAN: The currency weakened to 7.1982 against the dollar from 7.1965 on Friday. The PBOC set the dollar-yuan central parity rate lower at 7.0943, compared with 7.0975 set on Friday. The fixing was estimated at 7.1993 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bond was last at 2.3075%, down from the previous close of 2.3230%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.99% to 3,084.93 while the CSI300 index edged up 0.94% to 3,603.53. The Hang Seng Index gained 0.10% to 16,737.12.

FROM THE PRESS: The PBOC will likely cut the rate of the medium-term lending facility by 10-20 bps in Q2, despite keeping the rate unchanged last week, said Wang Qing, chief macro analyst at Golden Credit Rating. Cutting the MLF and deposit rate remains highly necessary. Pressure on the net-interest margin of commercial banks has increased after the 5-year Loan Prime Rate was lowered by 25 bps, while the PBOC held the anchor MLF in February, said Ming Ming, chief economist at CITIC Securities. Analysts also expect the LPR to remain steady in March. (Source: Securities Daily)

The impact of the expanded trade surplus on the economy should not be overestimated, as the widening trade services deficit could offset it, noted Guan Tao, a former official at the State Administration of Foreign Exchange in an article published by Yicai. External demand as an economic driver corresponds to the balance of goods and services released by SAFE, not the trade balance released by Customs, Guan noted. In January, the 57% y/y growth in service deficit, mainly due to rebounding outbound tourism, offset the 18.3% growth in goods surplus, leading to 1.3% growth in the surplus of goods and services, Guan said.

The PBOC will explore paths to help China become a greater financial power, including measures to build a modern central bank system, a strong international financial centre and steadily promote the internationalisation of the yuan, according to a statement on its website Saturday. PBOC Governor Pan Gongsheng said becoming a financial power will require, not only a strong economic foundation, but also continuous financial reform and international financial cooperation, as well as improved rules, regulations, management, and standards in the financial sector.