MNI China Daily Summary: Thursday, April 25

     PBOC: The prudent monetary policy currently pursued is appropriate in equal

measure, said Sun Guofeng, the central bank's director of monetary policy

department, saying its neither been loosened nor tightened. Policymakers don't

want to see either a shortage or excess of liquidity, Sun added. While the

Targeted Medium-term Lending Facility (TMLF) conducted by the PBOC Wednesday was

for short-term adjustment and doesn't represent a change in policy direction,

said Liu Guoqiang, deputy governor of the People's Bank of China (PBOC).

     POLICY: Leading Chinese officials have vowed to tame debt risks in

countries which join the Belt and Road initiative, aiming to make its

infrastructure plan more sustainable and head off criticism it could be a "debt

trap" for participating countries. The Ministry of Finance will work on

establishing a sustainable financing system, including an analytical framework

of debt sustainability aimed at preventing and resolving debt risks, Finance

Minister Liu Kun told the Belt and Road Forum in Beijing today, officially

launching the plan. The PBOC will also look to strengthen debt and risk

management, central bank Governor Yi Gang told the same audience.

     POLICY: China's inflation is under control despite being impacted by

persistently high pork prices, the head of the National Bureau of Statistics

told reporters today. "The costs of other food items," apart from pork, remain

moderate, and as measures undertaken to boost supply and fight the African swine

virus, which killed herds across the country, inflation won't surge, Ning Jizhe,

who also serves as vice chairman of the National Development and Reform

Commission, said on the sidelines of the Belt and Road forum.

     POLICY: China's economy saw a "good recovery" in the first quarter, so

policymakers should "wait and see" before further cutting the reserve

requirement ratios (RRR) for banks and further loosening liquidity, Li Daokui, a

former member of the PBOC monetary policy committee, told reporters today. "The

economy has basically stabilized," Li said on the sidelines of the Belt and Road

forum. There needs to be continued policy dialogues first, said Li without

elaborating. 

     LIQUIDITY: The PBOC skipped open market operations for the fourth trading

day, resulting in a net drain of CNY80 billion, the amount of reverse repos

maturing, according to Wind Information. Total liquidity at the banking system

is at a reasonable and ample level, according to the PBOC.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.8900% from Wednesday's close of 2.8241%, Wind

Information showed. The overnight repo average decreased to 2.5000% from

Wednesday's 2.7560%. 

     YUAN: The yuan weakened to 6.7410 against the dollar from Wednesday's close

of 6.7179. The PBOC set the dollar-yuan central parity rate at 6.7307 today,

compared with 6.7205 set Wednesday.

     BONDS: The yield on 10-year China Government Bond was last at 3.4150%, down

from the close of 3.4300 on Wednesday, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index fell 2.43% to 3123.83, as

fuel cell and electric car shares led the drop. Hong Kong's Hang Seng Index

decreased 0.86% to 29,549.80.

     FROM THE PRESS: By using its TMLF instead of cutting the RRR, the PBOC has

indicated a marginal tightening of monetary policy, while fiscal policy remains

loose, the Securities Times said in a commentary piece today. The PBOC intends

to lower long-term interest rates to underpin economic growth by using TMLF,

while cutting RRR at this point may push short-term interest rates lower and put

upward pressure on the asset prices, the paper said.

     The PBOC is unlikely to cut the RRR either across-the-board or selectively

in the near future, as the current focus of monetary policy will shift from

'scale expansion to structural optimization', the Economic Information Daily

reported, citing leading analysts. Unblocking the transmission mechanism of

monetary policy, easing the financing difficulty for private and small companies

and liberalizing interest rates will all be a focus in Q2, the paper reported,

citing Dong Ximiao, a vice president at the Chongyang Institute for Financial

Studies.

     Higher oil prices will constrain central banks' ability to use monetary

policy to boost growth and stabilise stock markets as the global economy and

trade slow, said Mei Xinyu, a MOFCOM-back think tank researcher, in an article

published on 21st Century Business Herald. Escalating U.S. sanctions against

Iran may push up the oil price, as other major oil exporters -- including Saudi

Arabia -- may not be willing to increase production to curb the upward price

pressure, Mei said. China's monetary policy should be prepared for possible

inflation, as it is more easily affected by changing oil price than the U.S.,

Mei added.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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