MNI China Daily Summary: Tuesday, February 21

EXCLUSIVE: China’s central bank should avoid overly expansionary monetary easing and make only temporary use of its targeted tools given the economy could grow at up to 6% this year as pent-up demand fuels a recovery, a former People’s Bank of China (PBOC) adviser told MNI.

LIQUIDITY: PBOC conducted CNY150 billion of operations via 7-day reverse repos on Tuesday, with the rates unchanged at 2.00%. The operation led to a net injection of CNY59 billion after offsetting the maturity of CNY91 billion reverse repos today, according to Wind Information. The operation aims to keep banking system 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 2.1523% from the close of 2.1354% on Monday, Wind Information showed. The overnight repo average was up to 2.1769% from the previous 2.1512%.

YUAN: The currency weakened to 6.8734 against the U.S. dollar from the previous close of 6.8555. The PBOC set the dollar-yuan central parity rate lower at 6.8557, compared with 6.8643 set on Monday.

BONDS: The yield on the 10-year China Government Bond was last at 2.9275%, up from the close of 2.9225% on Monday, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.49% to 3,306.52, while the CSI300 index was up 0.26% to 4,144.35. Hong Kong's Hang Seng Index was down 1.71% to 20,529.49.

FROM THE PRESS: Yangzhou City in Jiangsu province has introduced new measures to stimulate demand in the real estate market, according to the Securities Daily Network. According to the paper, the local government will lower the mortgage rate for first time buyers, offering a 50bp discount to the loan prime rate compared to a 20bp discount previously. This will lower mortgage interest rates to 3.8% from 4.1%. Additionally, there will also be a relaxation of restrictions on residents selling their second property to buy newly built apartments, which was previously only allowed after 3 years of ownership. Citing analysts, the paper said the measures show cities like Yangzhou are fully utilising the mortgage pricing powers given to them by the central bank to spur demand in the market.

The China Securities Regulatory Commission (CSRC) is launching a pilot project to increase participation of private equity in the real estate sector, according to a notice on the CSRC website. Working with the Asset Management Association, fund managers who meet certain criteria will be allowed to set up new real estate private equity funds in accordance with the program conditions. Investors must have a stable equity structure, sound corporate governance, and not be in control of real estate development enterprises or their affiliates. The investment scope includes market-oriented rental housing, commercial housing and infrastructure projects.

Authorities in China will likely lower the over-five-year loan prime rate later in H1 2023 by around 0.1 to 0.15 percentage points, according to the 21st Century Herald. Citing analysts, the paper said bringing the rate down will allow for lower housing loans, which will help the property market carry recovery momentum into the second half of the year. The decision to keep LPR rates stable in February was due to high marginal costs for banks, and authorities adopting a wait-and-see approach to developments in the property market.