MNI China Daily Summary: Tuesday, March 21

POLICY: China's reference lending rates is expected to be held steady over coming months, but the People’s Bank of China (PBOC) will provide ample liquidity to allay any concerns about spillover effects from the banking turmoil triggered by the collapse of Silicon Valley Bank and sale of Credit Suisse, economists and analysts said.

LIQUIDITY: The PBOC conducted CNY182 billion of operations via 7-day reverse repos, with the rates unchanged at 2.00%. The operation led to a net drain of CNY153 billion after offsetting the maturity of CNY29 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) rose to 2.2271% from 2.1884% on Monday, Wind Information showed. The overnight repo average rose to 2.4205% from the previous 2.2852%.

YUAN: The currency strengthened to 6.8738 against the dollar from 6.8931 on Monday. The PBOC set the dollar-yuan central parity rate higher at 6.8763, compared with 6.8694 set on Monday.

BONDS: The yield on 10-year China Government Bond was last at 2.8725%, up from Monday's close of 2.8600%, according to Wind Information.

STOCKS: The Shanghai Composite Index was up 0.64% to 3,255.65, while the CSI300 index increased 1.10% to 3,982.38. The Hang Seng Index edged up 1.36% to 19,258.76.

FROM THE PRESS: The pace of US willingness to decouple from China may slow down in order to ease inflationary pressures exacerbated by the SVB collapse restricting the Fed’s ability to raise interest rates, according to Liu Yuhui, Professor at the Chinese Academy of Social Sciences and a member of the China Chief Economist Forum. Liu also said that China is facing the risk of deflation if domestic demand did not return sufficiently, and therefore macro policy needed to be bolder. In the past 3 years, China's residential, corporate, and local government balance sheets have declined, which will take time to recover, he said.

China’s trade environment is grim and complex but opportunities remain, while Beijing's competitive advantage remains unchanged, according to Yu Jianhua, Director of the General Administration of Customs. Speaking at a press conference, Yu said moves by some countries to promote decoupling, and financial market volatility in some western nations, had presented a challenge for China to promote stability and quality in foreign trade. The government will “go all out to promote trade” and help enterprises make full use of agreements such as Regional Comprehensive Economic Partnership. The momentum of foreign trade in the first two months is expected to continue this year, Yu said.

Curbing systemic financial risk and enforcing discipline are priorities for 2023, according to a report released by the Ministry of Finance. Yicai news said recent fines imposed on Deloitte shows the ministry is serious about enforcing laws and regulations to prevent accounting irregularities. Strict supervision of local government debt is needed, especially to identify and manage debt with short maturities and high interest rates. In the face of declining local fiscal revenues, the central government will need to increase financial support to local governments, Yicai said.