MNI China Daily Summary: Thursday, February 20

     BEIJING (MNI) - EXCLUSIVE: Chinese authorities are likely to announce a

reduction in a key benchmark rate for lending to companies on Thursday, and

could continue to cautiously guide down key interest rates in the coming months

to help the economy cope with coronavirus, policy advisors and former central

bank official told MNI, stressing that officials remain wary of allowing

excessive leverage to develop.

     EXCLUSIVE: Moves by China to ease lending standards to bolster the economy

during the coronavirus outbreak will prompt a spike in bad loans and force the

authorities to rescue more smaller banks from less developed regions of the

country later this year as downward pressure weighs on output, policy advisors

told MNI.

     POLICY: The People's Bank of China (PBOC) cut the one-year Loan Prime Rate

(LPR) by 10 bps to 4.05% on Thursday while also cutting the five-year LPR by 5

bps to 4.75%. The reductions are in line with market expectations after the

central bank lowered interbank borrowing costs earlier this month. A MNI story

on Wednesday also signalled the LPR would be guided lower.

     POLICY: China's consumer spending may recover in the second quarter and

gather steam in the second half of the year, fuelled by pent-up demand from the

Q1 slowdown, Wang Bin, deputy director at the Ministry of Commerce's Market

Operation Bureau said today. Consumer spending is expected to bottom out in

March after a tough February, Wang said.

     DATA: China's January aggregate financing more than doubled from December

to CNY5.07 trillion, beating the CNY4.2 trillion market consensus, a data

released by the PBOC showed. M2 rose 8.4% y/y, slowing from the 8.7% rise in

December and lower than 8.5% forecast by most economists. New loans totalled

CNY3.34 trillion, nearly tripling to CNY1.14 trillion in December, and was

higher than the projected CNY3.01 trillion.

     LIQUIDITY: The PBOC skipped open market operations for the third day,

leaving liquidity unchanged, according to Wind Information. Total liquidity in

the banking system is at a reasonable and ample level, PBOC said on its website.

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

institutions (DR007) fell to 2.1060% from Wednesday close 2.1150%, data by Wind

Information showed. The overnight repo average decreased to 1.3794% from

Wednesday's 1.6037%.

     YUAN: The currency weakened to 7.0153 against the dollar from Wednesday's

6.9941 close. PBOC set the dollar-yuan central parity rate higher for a third

trading day at 7.0026, compared with 7.0012 on Wednesday, the strongest fixing

since Dec 25, 2019.

     BONDS: The yield on 10-year China Government Bonds was last at 2.9100%, up

from Wednesday's close of 2.9050%, according to Wind Information.

     STOCKS: The Shanghai Composite Index rallied 1.84% to 3,030.15 following

the cuts to LPR this morning. Hong Kong's Hang Seng Index edged down 0.17% to

27,609.16.

     FROM THE PRESS: The PBOC is guiding money market rates towards normal this

week by injecting less money through OMOs, the Securities Times reported citing

Zhang Xu, a fixed-income analyst with Everbright Securities. Monetary policy has

shifted focus from short-term stability to restoring the economy in the medium

term, the newspaper said citing Yan Se, chief economist with Founder Securities.

     The PBOC's Q4 monetary policy report emphasized the importance of meeting

annual growth targets amid short-term downward pressure on the economy, Ming

Ming, chief fixed-income analyst at CITIC Securities said in a report. The Q4

report also proposed the strengthening of countercyclical adjustments, and the

overall policy stance is looser than that in the Q3 report, Ming said.

     Local authorities should accelerate the orderly return of employees,

safeguard the financing needs of enterprises and prioritize cargo

transportation, the China National Radio reported citing Tang Shemin, an

inspector at the National Development and Reform Commission. More than 50%

industrial operations have resumed in a number of major economic centres

including Guangdong, Jiangsu and Shanghai, CNR said.

     American news agencies in China should be worried if the U.S. escalates its

attacks against the Chinese media, the Global Times said in an editorial

published late Wednesday. The U.S. labelling five Chinese state-run news

agencies' U.S. operations as foreign missions and China revoking the journalist

credentials of three WSJ reporters show that ideological conflict is

intensifying, a sign of a more turbulent relationship between the two powers,

the editorial said.

--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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