MNI China Daily Summary: Wednesday, Feb 28

EXCLUSIVE: Fears that China will export deflation to the world are overblown, with the country’s inflation likely to move out of negative territory as domestic demand picks up and the drag from commodity prices wanes, the International Monetary Fund’s deputy mission chief for China told MNI.

POLICY: The People's Bank of China (PBOC) will conduct its second central bank bills swap (CBS) operation this year on February 28, according to a statement on its website.

POLICY: The People’s Bank of China will broaden coverage of its Cross-Border Interbank Payment System (CIPS) as it seeks to further facilitate cross-border trade and investment and to support Shanghai’s development as a centre for yuan financial asset allocation, PBOC governor Pan Gongsheng said.

LIQUIDITY: The PBOC conducted CNY324 billion via 7-day reverse repo on Wednesday, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY275 billion reverse repos after offsetting CNY49 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8311% from 1.9287%, Wind Information showed. The overnight repo average decreased to 1.6777% from 1.8105%.

YUAN: The currency weakened to 7.1986 to the dollar from 7.1978 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.1075, compared with 7.1057 set on Tuesday. The fixing was estimated at 7.2004 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.4000%, down from Tuesday's close of 2.4200%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 1.91% to 2,957.85 while the CSI300 index fell 1.27% to 3,450.26. The Hang Seng Index dropped 1.51% at 16,536.85.

FROM THE PRESS: Local governments are required to formulate annual housing development plans for 2024 and 2025 which should scientifically arrange land supply based on housing demand to prevent high volatility, according to a statement on the website of the Ministry of Housing and Urban-Rural Development. The plans should clarify the annual supply of housing and land, and calculate the reasonable financing needs of real-estate projects. Local authorities should also plan for 2026-2023 in advance.

Authorities should implement SOE reforms which optimise the layout of state capital and bring large positive externalities such as AI, according to Wang Hongzhi, deputy director of the State-owned Assets Commission. Speaking at a meeting to discuss SOE development in 2024, Wang said they need reforms to promote listing and financing, compress management levels, increase emerging industry investment, and optimise organisational structure. In 2023, SOEs invested CNY2.18 trillion in emerging industries, accounting for 35.2% of total SOE investment, official data showed. (Source: Securities Daily)

Passenger airlines between China and the U.S. are expected to increase to about 100 weekly round-trip. After the U.S. allowed Chinese carriers to boost weekly round-trip passenger flights to 50 from the current 35 starting on March 31, China may follow suit based on the principle of reciprocity. About 150 weekly round-trip passenger flights were allowed by each side before restrictions were imposed in early 2020 due to the COVID-19 pandemic. The number of flights between the two countries exceeded 520 during Feb 1-26, an increase of nearly three times compared with the same period in 2023, but it only recovered to about 22% of the same period in 2019. (Source: Caixin)