MNI China Daily Summary: Thursday, March 7

     POLICY: China's 0.2 percentage-point increase in this year's budget deficit

will counter slowing growth, with the deficit hike largely accounted for by

reduced tax revenues after cuts, Minister of Finance Liu Kun said Thursday.

China has been able to keep its deficit at the forecast level by cutting costs

and focusing on targeted spending, Liu said. The target deficit ratio for 2019

has been increased to 2.8% of GDP from 2.6% last year, according to Premier Li

Keqiang's Government Work Report.

     POLICY: Local governments are forbidden to raise funds illegally via local

government financing vehicles (LGFVs) and add new implicit debts, Liu Kun told

reports today. The finance ministry will monitor local fiscal departments and

LGFV, and they will be held accountable if new debts are found, Liu said.

     DATA: FX reserves increased by $2.26 billion to $3.0902 trillion in

February, slightly up from $3.0879 trillion in January, rising for the fourth

consecutive month, data released by the State Administration of Foreign Exchange

today showed. The FX reserves' value was bolstered by exchange rate conversions

and asset price fluctuations, according to SAFE.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

for the sixth trading day, which left liquidity unchanged as no reverse repos

mature, according to Wind Information. Total liquidity in the banking system is

at a reasonable and ample level, said the PBOC. There is a maturity of CNY105.5

billion of one-year Medium-term Lending Facility today, Wind Information said.

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

institutions (DR007) increased to 2.3960% from Wednesday's close of 2.3931%,

according to Wind Information. The overnight repo average fell to 2.0583% from

Wednesday's 2.0701%.

     YUAN: The yuan appreciated to 6.7074 against the U.S. dollar from

Wednesday's close of 6.7106. The PBOC set the dollar-yuan central parity rate

lower at 6.7110 today, compared with 6.7053 on Wednesday.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.1900%, down 3.6 bps from the close of Wednesday, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index rose 0.14% to 3,106.42. Hong

Kong's Hang Seng Index decreased 0.89% to 28,779.45.

     FROM THE PRESS: Lowering the VAT rates may reduce taxes by CNY800 billion,

a large share of the CNY2 trillion total, said Economic Information Daily today

citing the calculation by Hu Yijian, professor at the Shanghai University of

Finance and Economics.

     Premier Li Keqiang's work report sent a clear signal of rate cuts, the

China Business News said today citing Ming Ming, chief analyst at CITIC

Securities. Ming noted that for the first time in recent years, the annual

report indicated "the authority may use quantitative and price instruments, such

as reserve requirement ratio and interest rates, to guide financial institutions

expanding credit and lowering lending cost," the newspaper reported.

     Allowing more foreign banks, insurance and brokerage firms to enter the

Chinese market can play a positive role with little risks, said Shanghai

Securities News citing Guo Shuqing, chairman of the China Banking and Insurance

Regulatory Commission. China has the conditions and experiences for an open and

stable financial market, the newspaper said citing Guo.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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