MNI China Daily Summary: Monday, May 25

     EXCLUSIVE: China's economy will need to grow by 3.5-4% in 2020 to meet

objectives set by Premier Li Keqiang's government, even as in a departure from

usual practice it set no formal GDP target, a source close to policy makers

said, in a comment in line with remarks to MNI by advisors.

     POLICY: China said its planned record hike of deficit and selling of a

special bond are feasible policies necessary to stabilize its economy after the

coronavirus outbreak. The 3.6% deficit/GDP ratio adopted this year is lower than

the global average of about 10% as governments raise debt to deal with the

pandemic, Cong Liang, secretary general of the National Development and Reform

Commission (NDRC), said at a briefing on Sunday. Deficit was planned to be no

more than 2.8% last year.

     POLICY: China's top diplomat called a new law to tighten controls over

security in Hong Kong an "internal affair" and warned that some U.S. political

interests are trying to push the two powers into a new cold war. "A political

virus is spreading in the U.S., taking every opportunity to smear and attack

China," State Councillor and Foreign Minister Wang Yi said at a press conference

on Sunday. "Certain U.S. politicians have made up so many lies about China and

planned too many plots," he said.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

for the sixth 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 1.6214% from Friday's close of 1.5159%, Wind

Information showed. The overnight repo average increased to 1.4776% from the

previous 1.0937%.

     YUAN: The currency strengthened to 7.1360 against the dollar from 7.1416 on

Friday. PBOC set the dollar-yuan central parity rate higher at 7.1209, the

highest since February 2008, compared with the 7.0939 set on Friday.

     BONDS: The yield on 10-year China Government Bond was last at 2.6550%, up

from the close of 2.5775% on Friday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index edged up 0.15% to 2,817.97. Hang Seng

Index rose 0.10% to 22,952.24.

     FROM THE PRESS: China's fiscal and financial systems are healthy and the

government has ample ammunition for both fiscal and monetary policy, the China

Business News reported citing Yang Weimin, a former deputy director of the

Central Leading Group for Finance and Economics. China had not yet completed its

historical mission of urbanisation, and enabling 300 million migrant workers to

settle in cities would significantly expand domestic demand and drive growth,

Yang was cited as saying.

     Chinese banks may see their profits falling this year with some even

incurring losses, according to an article by PBOC's research bureau published on

China Finance. Banks will face increasing pressure on non-performing loan

disposal and capital consumption as the difficulties in the real economy are

transmitted to the financial sector, the article said. Banks should increase

their provisions and supplement capital to prepare for possible risks, the

article added. Commercial banks achieved a net profit of CNY600.1 billion for

the first quarter of 2020, an increase of 5% y/y compared with the 9.4% gain in

Q1 2019.

     Local governments should consider directly subsidising people on low

incomes and this could be combined with helping private and small companies, the

21st Century Business Herald reported citing Liu Shijin, deputy director of the

Economic Committee of the CPPCC National Committee. The government could provide

direct wage subsidies or issue consumer vouchers to employees of SMEs whose

income is below a certain level. Liu said that consumer coupons issued to the

public recently failed to adequately target troubled SMEs and low-income

workers.

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

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