MNI China Daily Summary: Thursday, September 17

EXCLUSIVE: Falling food prices mean Chinese consumer price inflation is likely to dip below 2% y/y by the end of 2020 and potentially go as low as 0%, policy advisors have told MNI. Improved supply and a high 2019 base price are driving a plunge in pork prices, noted Wang Jun, a member of the academic committee at China Center for International Economic Exchanges, who expects annual inflation to reach about 2% and is concerned about a detrimental economic impact if it weakens further. Such low levels of price increases, combined with a negative producer price index, a weak GDP deflator and record low core CPI inflation of 0.5%, could be considered to be quasi-deflation -- a period of low price rises and anaemic demand, he said, adding that the People's Bank of China might step in.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY110 billion via 7-day reverse repos with the rate unchanged on Thursday, draining net CNY30 billion due to the maturity of CNY140 billion reverse repos, according to Wind Information. Meanwhile, CNY200 billion Medium-tern Lending Facilities matured today. The PBOC has issued CNY600 billion in MLF on Tuesday.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.2044% from Wednesday's close of 2.1481%, Wind Information showed. The overnight repo average rose to 1.7901% from the previous 1.3956%.

YUAN: The currency weakened to 6.7659 against the dollar from 6.7613 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.7675, compared with Wednesday's 6.7825.

BONDS: The yield on 10-year China Government Bond was last at 3.1300%, up from the close of 3.1275% on Monday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.41% to 3270.44, while the CSI300 index fell 0.53% to 4,632.71. Hang Seng Index lost 1.56% to 24,340.85 with technology companies seeing the biggest drops.

FROM THE PRESS: The yuan's surge past 6.76 against the dollar should draw more foreign capital to China's bond market supported by stable liquidity, higher returns and the fast-recovering economy, the China Securities Journal reported on Thursday citing a report by investment bank CICC. As the fundamentals strengthen and businesses accelerate forex settlements, the yuan may continue to appreciate in the near term, the Journal reported citing market sources.

The PBOC is more likely to use open market tools and lending facilities to boost banks' current low excess reserves, while refraining from RRR cuts, the 21st Century Business Herald reported citing Zhou Zhijun, an analyst with GF Securities. As the recovery accelerates, policymakers are likely to curb the growth of total social financing and the expansion of banks' balance sheets, Zhou said.

U.S. Undersecretary of State Keith Krach's visit and possible U.S. arms sales to Taiwan may "plant torpedoes in the water of the Taiwan Strait", commented the Global Times on Thursday. Taiwan shouldn't interject itself into the China-U.S. game as any upgrade to official U.S.-Taiwan ties will only create tension and damage the security and well-being of the people of Taiwan, the newspaper said. Any U.S. arms sales are extortion in disguise, and all the equipment purchased from the U.S. will be useless should China launch its force on Taiwan, the tabloid said.