MNI China Daily Summary: Tuesday, May 24

POLICY: China’s embattled property market will see a gradual recovery in the second half of this year, as pledges from top policymakers to local authorities aim for a quick turnaround once Covid-19 cases drop, according to analysts citing the latest real estate data.

POLICY: Chinese banks should increase financial support to key areas including green development, technological innovation, energy supply and water conservancy projects, and support high-quality economic development with moderate credit growth in the face of renewed downward pressure, according to a statement on the People’s Bank of China (PBOC) website.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5435% from the close of 1.5796% on Monday, Wind Information showed. The overnight repo average increased to 1.3280% from the previous 1.3214%.

YUAN: The currency weakened to 6.6671 against the dollar from Monday's close of 6.6634. The PBOC set the dollar-yuan central parity rate lower at 6.6566, compared with 6.6756 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7960%, up from Monday's close of 2.7950%, according to Wind Information.

STOCKS: The Shanghai Composite Index tumbled 2.41% to 3,070.93, while the CSI300 index dropped 2.34% to 3,959.15. The Hong Kong's Hang Seng Index fell 1.75% to 20,112.10.

FROM THE PRESS: China will expand tax rebates to more industries by over CNY140 billion, refunding a total of CNY2.64 trillion in taxes for the whole year, according to a statement on the gov website citing a State Council executive meeting. Support tools for SME loans will be doubled, and banks will allow deferred repayment of SME loans, truck loans and housing mortgages, and consumer loans of individual borrowers experiencing difficulties within the year, the statement said. The purchase tax on some passenger cars will be cut by CNY60 billion to boost consumption, and a new batch of large-scale projects in water conservancy, transportation, and renovation of older residential areas has been started, the statement said.

The People’s Bank of China should give more emphasis on the use of quantitative tools at the moment, as lowering policy interest rates will further invert the Sino-U.S. spread and may add to the pressure of capital outflows, said NetEase Finance citing a former director of the PBOC’s Statistics and Analysis Department. Sheng also noted prices tend to rise due to imported inflation and likely rising pork prices, the newspaper said. The PBOC should maintain the basic stability of the yuan at a balanced level and if necessary, the forex deposit reserve ratio can be further lowered from the current 8% and the counter-cyclical adjustment factor can be restarted, said Sheng.

The yuan will return to a wider range of trade as depreciation expectations weaken, and the surplus in the balance of payments offers support, said the 21st Century Business Herald in an editorial. The Covid-19 spread has been effectively controlled and production, and recent pro-growth policies and 15 bps cut in five-year LPR helped restore market confidence in the economy, the newspaper said. It added that a fall in U.S. bond yields and the dollar index also provide support for the yuan. The PBOC has abundant tools to stabilise the currency, including the issuance of offshore central bank bills to tighten the liquidity of offshore RMB and narrow the onshore-offshore yuan spread, the newspaper said.