MNI China Daily Summary: Tuesday, May 16

POLICY: China's economy continued to recover over the last four months with major economic indicators catching up quickly, data released by the National Bureau of Statistics on Tuesday showed.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos, with the rates unchanged at 2.00%. The operation, plus the CNY125 billion MLF conducted Monday, has led to a net injection of CNY25 billion after offsetting the maturity of CNY2 billion reverse repo and CNY100 billion MLF 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 1.7943% from 1.8130%, Wind Information showed. The overnight repo average decreased to 1.4550% from 1.4799%.

YUAN: The currency weakened to 6.9641 against the dollar from 6.9525. The PBOC set the dollar-yuan central parity rate lower at 6.9506, compared with 6.9654 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7720%, up from Monday's close of 2.7695, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.60% to 3,290.99, while the CSI300 fell 0.52% to 3,978.21. The Hang Seng Index was up 0.04% to 19,978.25.

FROM THE PRESS: China’s CPI will remain low in May and June due to the high-base effects of last year, according to the recently released People’s Bank of China’s Q1 policy report. However, the economy will record faster consumer price increases later in the year, when policy measures take effect and the gap between supply and demand closes, the central bank said. The report also noted China should maintain a prudent monetary policy to avoid high inflation and banking instability experienced by developed countries. The PBOC said the economy does not face deflation risk, as M2, social financing and growth are expanding. Authorities will prioritise supervising the SME banking sector to mitigate risks, the report said. (Source: 21st Century Herald)

Regulators should monitor financial risks posed by real estate and local financing platforms that may be exposed to liquidity shortages, according to a report released by China Orient Asset Management. Wang Zhanfeng, secretary of the party committee and chairman at China Orient, said policy measures were needed to accelerate reforms of SME banks to develop corporate governance and broaden capital replenishment channels. Economists believed non-performing assets were still an issue, with 86% saying the full extent of the problem was not yet fully exposed. SME banks will continue to face risks in 2023, with 39.6% of respondents saying risk will increase, and 4.1% seeing a fall. (Source 21st Century Herald)

The yuan is expected to remain stable this year, as spill over from developed nations' monetary tightening eases and economic fundamentals improve, according to Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange. Speaking at a recent press conference, Wang said independent market actors determined the current FX rate and supply, and demand was balanced. China’s capital account remained stable and orderly, as foreign investors were increasingly attracted to CNY assets, which helped stabilise the FX market, he said.