MNI China Daily Summary: Tuesday, February 22

POLICY: China calls on all parties concerning the Russia-Ukraine conflict to continue dialogues and encourages all efforts to promote a diplomatic solution, Zhang Jun, Permanent Representative of China to the United Nations, said at the UN Security Council’s emergency meeting on Ukraine situation, CCTV News reported. On the same day, China’s Foreign Minister Wang Yi talked to U.S. Secretary of State Antony Blinken by phone. Wang called on all parties to exercise restraint and ease the deteriorating situation through negotiations, according to a statement on the ministry's website.

POLICY: China will "properly set the budget deficit-to-GDP ratio" to expand fiscal spending, including larger-scale tax and fee cuts and increased transfer payments to local governments, so to counter growing downward pressure, said Minister of Finance Liu Kun at a briefing. The cuts will be larger than the CNY1.1 trillion in 2021, said Vice Finance Minister Xu Hongcai.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY100 billion via 7-day reverse repos with the rates unchanged at 2.10%. The operation has led to a net drain of CNY90 billion after offsetting the maturity of CNY10 billion repos today, according to Wind Information. The operation aims to offset the impact of tax season and maintain stable liquidity at month-end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.1882% from the close of 2.1154% on Monday, Wind Information showed. The overnight repo average fell to 2.0257% from the previous 2.1780%.

YUAN: The currency weakened to 6.3356 against the dollar from Monday's close of 6.3333. The PBOC set the dollar-yuan central parity rate higher at 6.3487, compared with 6.3401 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.8375%, down from Monday's close of 2.8475%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.96% to 3,457.15, while the CSI300 index lost 1.30% to 4,574.15. The Hong Kong's Hang Seng Index tumbled 2.69% to 23,520.00.

FROM THE PRESS: The yuan may continue its current strength before the Federal Reserve starts its expected rate hikes in March, as the recent Russia-Ukraine conflict increases the demand for alternative yuan assets and China’s economic fundamentals continue to play a supporting role, the Securities Times reported citing Wang Youxin, senior researcher at Bank of China Research Institute. The cross-border capital flow and the yuan may become more volatile after the Fed Reserve’s March meeting, and companies should not bet on any one-way movement of the currency but make reasonable use of forex derivatives and yuan for settlement, the newspaper cited Wang as saying.

The PBOC may further lower the benchmark Loan Prime Rate in March if credit expansion falls short of expectations, the China Securities Journal reported citing Wang Yifeng, chief analyst of Everbright Securities. Though LPR was kept unchanged on Monday after two straight cuts in January and December, the window for easing is still open, the newspaper said. The PBOC may cut the reserve requirement ratios slightly before the expected first rate hike by the Federal Reserve around March 16, pushing the LPR further down, the Journal said citing Wang Yunjin, senior researcher of Zhixin Investment Research Institute.

Six major state-owned banks in China's southern city Guangzhou lowered the mortgage interest rates by 20 basis points, yet another signal that the authorities are easing to boost the real estate markets, reported Quanshang China, a social media account run by the Securities Times. Guangzhou is one of China's so-called tier-one cities considered barometers for policy directions. There is room for further rate cuts as banks have plenty of loan quotas to dole out, the newspaper said citing Yan Yuejing, director of E-house China Research and Development Institution. More smaller cities are expected to reduce down payment ratios or even relax the number of homes they can purchase, the newspaper said citing Sinolink Securities.