MNI China Daily Summary: Wednesday, March 18

     EXCLUSIVE: The People's Bank of China (PBOC) should save its policy

ammunition as global risks rise on the spreading COVID-19 outbreak, Guan Tao, a

former director of the international payments department at the State

Administration of Foreign Exchange told MNI. Arguing against joining the current

round of global central bank action, Guan noted the PBOC had moved into

virus-fighting mode in early February and has been guiding market rates lower

since, via both a policy rate cut and liquidity injections.

     EXCLUSIVE: China will encourage its companies to raise funds in overseas

markets as global interest rates tumble, a former official at China's foreign

exchange regulator told MNI in an interview. The State Administration of Foreign

Exchange (SAFE) announced last week it has relaxed macro-prudential assessments

of cross-border funding risks. This will ease firms' financing difficulties and

high financing costs, as they seek to resume operations hit by the coronavirus

epidemic, the regulator said.

     LIQUIDITY: The PBOC skipped open market operations, leaving liquidity

unchanged, according to Wind Information. Liquidity in the banking system is

reasonable and ample, PBOC said on its website.

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

institutions (DR007) decreased to 1.6763% from Tuesday's close 1.7529%, Wind

Information showed. Overnight repo average fell to 0.9548% from 1.0720%

yesterday.

     YUAN: The yuan weakened to 7.0260 against the dollar from Tuesday's close

7.0096. PBOC set the dollar-yuan central parity rate higher at 7.0328, compared

with 7.0094 on Tuesday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.7200%, up

from Tuesday's close of 2.7150%, according to Wind Information.

     STOCKS: The Shanghai Composite Index fell 1.83% to 2,728.76 amid persistent

worries over the rapid spread of the coronavirus overseas. Hong Kong's Hang Seng

Index tumbled 4.18% to 22,291.82.

     FROM THE PRESS: Local governments should accelerate work on 11,000 key

construction projects by offering support in labour, raw materials, funding and

virus prevention equipment, according to a statement on the State Council's

website citing an executive meeting held on Wednesday. Local authorities should

accelerate the issuance and use of special bonds for infrastructure projects and

prepare for more than 4,000 initial key projects planned this year while

increasing the pipeline of follow-up projects. Green channels for major project

approvals should be established and construction of approved projects should

begin as soon as possible, the government said.

     China's banking sector has not changed its overall hawkish stance toward

the real estate industry, the Securities Times reported citing Xiao Yuanqi,

spokesman for the China Banking and Insurance Regulatory Commission. While some

local banks and administrations lowered down payment ratios and interest rates

on home loans, these adjustments are in line with the general regulations, Xiao

said. Bank profits will increase at the same rate as last year despite the

negative impact of the epidemic, Xiao said. The NPL ratio increased 5 bps in

February and will continue to rise over the following months, but the CNY6

trillion in provisions are adequate to cover CNY3 trillion in NPLs, Xiao was

reported as saying.

     China should refrain from excessive issuance of local government special

bonds to boost infrastructure investment as doing so may crow out private

investments, the 21st Century Business Herald reported citing Liu Shangxi,

director of the Chinese Academy of Fiscal Sciences. The tax and fee cuts in 2020

can be borne by the central government through expanding the deficit to ease the

fiscal burdens of local governments, the newspaper cited Liu as saying.

--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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