MNI China Daily Summary: Tuesday, February 4

     EXCLUSIVE: The People's Bank of China (PBOC) will act further to support

the economy and stabilise market sentiment as Beijing battles coronavirus,

policy advisors told MNI, but one noted that supply constraints as a result of

the disruption caused by the disease could put pressure on consumer prices and

limit the potential for monetary easing. The central bank is likely to continue

providing liquidity to ease pressure on companies forced to suspend operations,

said Sheng Songcheng, former head of the PBOC statistics and analysis

department, noting there was still room for targetted cuts to both lending rates

and reserve requirements.

     EXCLUSIVE: The PBOC has made contingency plans for a steep yuan sell-off

caused by the coronavirus, but there is no sign so far that it will need to be

enacted, policy advisors told MNI. USDCNY surged pass 7 to the dollar for first

time since Dec. 27 on Monday was expected and allowed the onshore yuan to track

losses in the offshore CNH, which had continued to trade during the week-long

Chinese New Year holiday, Guan Tao, former Director General of Balance of

Payments at the State Administration of Foreign Exchange, told MNI. The

authorities have plans to deal with extreme market conditions, but there is no

need to activate them now, Guan said.

     EXCLUSIVE: China is likely to expand fiscal stimulus, boosting its budget

deficit to 3% of gross domestic product or higher to support the economy amid

the coronavirus outbreak, two government advisors told MNI, calling for the

government to provide assistance to affected companies. Even before the virus

outbreak, Liu Xiangdong, deputy director of economic research at the China

Center for International Economic Exchanges, had expected the deficit target to

be set at around 3% of GDP this year, up from 2.8% in 2019, as the authorities

aim for growth of around 6%. But the target may need to be widened further, he

said.

     LIQUIDITY: The PBOC injected CNY380 billion via 7-day reverse repos as well

as CNY120 billion via 14-day reverse repos. This resulted in a net injection of

CNY400 billion given the maturity of CNY100 billion today, according to Wind

Information. The operations aim to maintain reasonable and ample liquidity in

the banking system during special periods of epidemic prevention and control,

PBOC said.

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

institutions (DR007) fell to 2.4094% from 2.6003% on Monday, Wind Information

showed. The overnight repo average decreased to 2.2243% from 2.4892% on Monday.

     YUAN: The yuan strengthened to 6.9900 against the dollar from 7.0257 on

Monday. PBOC set the dollar-yuan central parity rate higher at 6.9779, compared

with Monday's 6.9249. Today's fixing is the highest since the start of the year

and is biggest daily move since Jul 20, 2018.

     BONDS: The yield on 10-year China Government Bonds was last at 2.8700%, up

from the close of 2.8375% on Monday, according to Wind Information.

     BONDS: China Development Bank will issue as much as CNY8 billion one-year

special bonds on Feb. 14 for the prevention and control of the coronavirus

epidemic, it said in a statement.

     STOCKS: The Shanghai Composite Index rallied 1.34% to 2,783.29. Hong Kong's

Hang Seng Index gained 1.21% to 26,675.98.

     FROM THE PRESS: Chinese local governments must help facilitate enterprises

resume production, Xinhua News Agency reported following a meeting of the

politburo's standing committee. Authorities should increase financial support,

initiate new investment projects and actively promote projects under

construction, Xinhua said.

     Total social financing and new yuan loans are expected to grow

substantially this year if the Loan Prime Rate (LPR) is cut this month, the

China Securities Journal reported citing Wang Qing, chief macroeconomic analyst

with Golden Credit Ratings. A lower LPR will reduce rates on loans, boost

corporate borrowing demand and mitigate the impact of the coronavirus epidemic

in the short term, the newspaper cited Wang as saying.

     Several Chinese banks say they will cut lending rates for small and

medium-sized enterprises (SMEs) severely affected by the coronavirus epidemic,

while taking other credit support measures to reduce their funding pressure, the

China Securities Journal reported. Bohan Bank will lower lending interest rates

by 0.5 percentage point for SMEs in Hubei province, while CITIC Bank's Wuhan

branch will also cut 0.5 pp from the interest rate for SME and personal business

loans, the newspaper said.

     China's State Taxation Administration will implement preferential tax

policies for medical care deliverers and is actively studying other tax support

policies, according to a statement on the its website.

--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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]