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POLICY: China is accelerating the sale of local government special bonds to help boost infrastructure investment to turn around an economic slowdown, aiming to issue most of the annual quota of CNY3.65 trillion by the end of June, according to analysts. Special bonds, to be repaid using income generated by the projects are seen as an important tool to drive investment and stabilise growth. Sales in May will exceed CNY600 billion to hit a new high this year, while that in June could reach as much as CNY1.42 trillion, according to a research note by China Industrial Secs.
DATA: Profits at China's industrial firms fell by 8.5% y/y in April, significantly reversing a double-digit gain as Covid-19 outbreaks disrupted factory activity and squeezed margins, data released by the National Bureau of Statistics showed. Industrial profits slowed to 3.5% y/y in the first four months, the NBS said. The NBS did not release the March monthly reading, but analysts from GF Securities estimate it grew about 14%.
LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.
RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.7138% from the 1.6686% on Thursday, Wind Information showed. The overnight repo average rose to 1.3750% from the previous 1.3598%.
YUAN: The currency strengthened to 6.7081 against the dollar from 6.7381 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 6.7387, compared with 6.6766 set on Thursday.
BONDS: The yield on 10-year China Government Bond was last at 2.7350%, down from Thursday's close of 2.7400%, according to Wind Information.
STOCKS: The Shanghai Composite Index rose 0.23% to 3,130.24, while the CSI300 index gained 0.21% to 4,001.30. Hang Seng Index rallied 2.89% to 20,697.36.
FROM THE PRESS: Banks are under great pressure to increase loans to small businesses amid weak demand despite regulators’ repeated calls to boost credit support to SMEs, the 21st Century Business Herald reported. Big banks have cut SME loan interest rates to around 3.5%, much lower than the average 5% released by the central bank, the newspaper said citing a bank worker in Shanghai. Companies have reduced borrowing and production sizes amid the economic downturn, while unsustainable businesses in need of loans fail to get approval from banks' risk control department, the newspaper cited another bank worker. New loans unexpectedly slumped to an over 4-year low of CNY645.4 billion in April from March's CNY3.13 trillion, MNI noted.
China should widen its level of support to more groups because those who are able to benefit from the current tax cuts and car purchase subsidies are not the groups most in need of a bailout, Yicai.com reported citing Huang Yiping, a former adviser to the PBOC. China may consider issuing special treasury bonds to support the economic activities of the difficult groups, Huang was cited as saying. Some analysts expect Q3 may be an important window for launching the issuance of these bonds with an expected scale between CNY1-2 trillion, the newspaper said.
Shanghai plans to resume trading in its land market from June 1, and the proportion of funds that developers must seal up in supervised accounts has been reduced to lure buyers, the Shanghai Securities News reported. The restart of the land market is an important signal as the city is actively promoting the resumption of work after a near two-month lockdown to curb the spread of Covid-19, the newspaper said. Some local state-owned developers have shown enthusiasm towards the land auction and targeted several plots, the newspaper added.
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