MNI China Daily Summary: Tuesday, May 26

     TOP NEWS: The People's Bank of China (PBOC) will continue with a targeted

efforts "flexible and appropriate" but prudent monetary policy in the wake of

the Covid-19 pandemic, Governor Yi Gang told reporters Tuesday. Yi also warned

that Chinese banks will likely face a rise in non-performing loans, a

consequence of the authorities' attempts to expand credit to aid companies

impacted by the economic impact of the outbreak. Spill-over effects from

overseas markets will also impact China's markets, giving rise to uncertainties

in the country's balance of international payment and cross-border capital

flows, Yi added.

     PBOC: The PBOC said its measures to lower banks' required reserve ratios

since 2018 freed up funds previously locked up and resulted in strong money

expansion, even as the cuts seemingly shrank its balance sheet. PBOC's reduced

balance sheet differed from the scenarios faced by central banks of developed

economies, such as that by the Federal Reserve, when they sold bonds and created

tightening, PBOC said in a statement on its WeChat account on Monday.

     PBOC: The PBOC conducted the fifth central bank bill swap (CBS) operation

to support the issuance of perpetual bonds by commercial banks. The CBS, valued

at CNY5 billion, is open to primary dealers at a fixed rate at 0.1%, according

to a statement on the PBOC website. The swap will be due on Aug. 26, 2020, the

statement said. The CBS scheme allows dealers to swap the perpetual bonds they

hold for central bank bills, which will boost demand for perpetual bonds.

     LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the

rate unchanged at 2.20%, according to a statement on the PBOC website. The

injection aims to keep liquidity in the banking system at a reasonable and ample

level, the PBOC said.

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

institutions (DR007) rose to 1.8590% from 1.6214% on Monday, Wind Information

showed. The overnight repo average increased to 1.8816% from 1.4776%.

     YUAN: The yuan strengthened to 7.1320 against the dollar from 7.1388 on

Monday. PBOC set the dollar-yuan central parity rate higher at 7.1293 on

Tuesday, compared with the 7.1209 set on Monday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.7050%, up

from the close of 2.6550% on Monday, according to Wind Information.

     STOCKS: The Shanghai Composite Index rallied 1.01% to 2,846.55. Hong Kong's

Hang Seng Index gained 1.88% to 23,384.66.

     FROM THE PRESS: The China Banking and Insurance Regulatory Commission will

continue to strengthen its supervision of shadow banking, increase on-site

inspections and strictly handle violations in asset management services,

inter-bank, off-balance-sheet and co-operative business, the China Securities

Journal reported citing an unnamed regulatory official. The balance of

inter-bank asset management was CNY846 billion by the end of the first quarter,

down 87% from the beginning of 2017, indicating a significant decline in risk,

the official told the Journal.

     China Development Bank will provide CNY360 billion, including CNY290

billion loans, to help the Guangdong-Hong Kong-Macao Greater Bay Area boost its

economic output this year, Xinhua News Agency reported. CNY110 billion will be

invested in technological innovation and strategic emerging industries, Xinhua

said. 

--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

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