MNI China Daily Summary: Wednesday, March 1

POLICY: China's Purchasing Managers' Index (PMI) rose for a second month to 52.6 in February, with the increase from 50.1 in January led by the quick recovery in both production and new orders, data from the National Bureau of Statistics showed.

POLICY: Local government finances will improve in 2023 as adjustments in epidemic control measures and growth policies lead to an economic recovery, said China's Finance Minister Liu Kun at a press conference.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY107 billion of operations via 7-day reverse repos, with the rates unchanged at 2.00%. The operation led to a net drain of CNY193 billion after offsetting the maturity of CNY300 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) decreased to 2.0887% from the close of 2.4209% on Tuesday, Wind Information showed. The overnight repo average decreased to 2.0610% from the previous 2.0957%.

YUAN: The currency strengthened to 6.8854 against the dollar from 6.9392 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.9400, compared with 6.9519 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.9125%, up from Tuesday's close of 2.9100%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 1.00% at 3,312.35, while the CSI300 index was up 1.41% to 4,126.94. The Hang Seng Index was up 4.21% to 20,619.71.

FROM THE PRESS: Under pressure from regulators, banks have begun accelerating the administration of mortgage prepayments and opened up previously “hidden” application channels, according to Yicai.com. The Banking and Insurance Regulatory Commission (CBRC) and the People's Bank of China (PBOC) warned banks in February to adhere to contractual rights of buyers to pre-pay mortgages. With the steady recovery of the economy and the improvement of the rate of return on residents' assets, the issue of prepayment is expected to be alleviated. However, with the transformation of the real estate market to a new development model, banks who have become over-reliant on real estate loans will face challenges, the news outlet said.

Experts expect the government to announce a GDP growth target of "above 5%" at the National People’s Congress starting this week, according to Yicai.com. The congress should send signals aimed at restoring market confidence in the economy from a policy perspective, and support SMEs through financial and policy support. Experts told the news outlet that fiscal policy would be the main focus of macroeconomic policy, while monetary policy is expected to remain precise and effective. The fiscal deficit rate is expected to reach 3.1%, close to the level of 2021, Yicai.com said.

Market sentiment towards the yuan remains strong despite the currency recently pushing up to 7 against the U.S. dollar, according to The 21st Century Herald. The outlook for the yuan remains good due to China’s strong economic fundamentals, with northbound capital pouring into A-shares. Guan Tao, former director of the State Administration of Foreign Exchange, said recently 7 should not be seen as an important indicator, and focus should be on maintaining a flexible exchange rate that mediates volatile capital flows, thus giving monetary policy autonomy, which is a positive aspect of China's financial opening.