MNI China Daily Summary: Thursday, March 5

     BEIJING (MNI) - EXCLUSIVE: China should allow its budget deficit to rise

and ease controls on borrowing helping to unleash an investment-driven effort to

kickstart an economy stalled by the coronavirus outbreak, a counsellor at the

State Council said in an interview with MNI. "The government may have not any

choice but to act," given the epidemic, together with the sluggish global

economy and trade frictions with the U.S., said Tang Min, an economist at the

official advisory body inside Premier Li Keqiang's cabinet.

     EXCLUSIVE: The People's Bank of China (PBOC) should consider further

cutting benchmark rates including the deposit rate and take targeted measures to

extend credit to struggling small businesses if economic situation further

deteriorates, an advisor to the State Council told MNI. Rate cuts, particularly

in the deposit rate, which has not changed since 2015, may further motivate

banks to expand credit as production and consumption recover, Tang Min, an

economist in Premier Li Keqiang's cabinet said in an interview, stressing that

he was expressing his personal opinion. He acknowledged that the efficacy of a

lower deposit rate may be limited, as wealth management products offering higher

rates have attracted a growing portion of the deposit market.

     EXCLUSIVE: China could consider broader coordination with Japan and South

Korea to safeguard supply chains disrupted by the coronavirus outbreak, Wei

Jianguo, former vice minister of commerce, told MNI in an interview on

Wednesday. "The three countries could strengthen communication on their

production chains, supply chains, and consumer markets, as well as share

information about epidemic control," said Wei, now vice chairman of the China

Center for International Economic Exchanges.

     POLICY: The spread of the coronavirus into Japan and South Korea is hitting

the operations of Chinese exporters, disrupting the imports of semi-finished

goods and impacting the supply chain, said Li Xingqian, director of Foreign

Trade at the Ministry of Commerce. The government will look to safeguard

production and supply chains to offset any negative impacts from the spread of

the virus overseas, Li said at a briefing today.

     POLICY: China's Ministry of Finance has increased transfer payments to

local governments to ease strains on their finance from tax cuts and the

coronavirus epidemic, Vice Minister Xu Hongcai said today. Spending should

prioritize the livelihood of people, government operations and civil employee

payrolls, Xu said.    

     LIQUIDITY: The PBOC skipped open market operations for the 13th day,

leaving liquidity unchanged, according to Wind Information. Liquidity in the

banking system is reasonable and ample, PBOC said on its website.

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

institutions (DR007) rose to 1.8906% from Wednesday's close 1.8844%, data by

Wind Information showed. The overnight repo average decreased to 1.4447% from

the previous 1.4578%.

     YUAN: The currency weakened to 6.9425 against the dollar from Wednesday's

6.9331 close. PBOC set the dollar-yuan central parity rate lower for a fourth

trading day at 6.9403, compared with 6.9514 on Wednesday, the strongest since

Feb. 4, 2020.

     BONDS: The yield on 10-year China Government Bonds was last at 2.7200%, up

from Wednesday's close of 2.7125%, according to Wind Information.

     STOCKS: The Shanghai Composite Index rallied 1.99% to 3,071.68, the highest

in almost two weeks as fewer new virus cases were reported outside epicentre

Hubei province. Hong Kong's Hang Seng Index gained 2.08% to 26,767.87.

     FROM THE PRESS: China should expand domestic demand and develop new areas

of consumption emerged since the epidemic, Xinhua News Agency reported citing

the Standing Committee of the Politburo of the Chinese Communist Party late

Wednesday. Local authorities should increase land, energy and funds to

accelerate major projects, including 5G network and data centres, Xinhua said.

     The PBOC should weigh the impact of easing already implemented and not

right away follow the interest rate cut by the Federal Reserve, according to a

commentary published by the Securities Times. The central bank has already

tapped monetary policies in early February including cutting policy rates,

conducting repos and providing relending, according to the commentary. 

     Infrastructure investment in China may have slowed to around 3% y/y in the

first two months, the Securities Daily reported citing Wang Qing, chief

macroeconomic analyst at credit rating agency Dongfang Jincheng. Local

authorities are beginning with traditional infrastructure projects such as

energy, transportation and water conservancy, before promoting new

infrastructures such as the 5G network, Wang was reported as saying. New

infrastructure investment could reach CNY1 trillion in 2020, with CNY200-300

billion in 5G base stations, the newspaper said citing Wang.

--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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