MNI China Daily Summary: Wednesday, May 17:

POLICY: China’s CPI rate will return to average levels later this year, as policies to boost domestic demand take effect and base effects weaken, according to a National Development and Reform Commission (NDRC) spokesperson.

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 has led to an unchanged liquidity after offsetting the maturity of CNY2 billion reverse repo 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 1.8557% from 1.7943%, Wind Information showed. The overnight repo average increased to 1.5108% from the previous 1.4555%.

YUAN: The currency weakened to 6.9985 against the dollar from 6.9641 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.9748 on Wednesday, compared with 6.9506 set on Tuesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7675%, unchanged from Tuesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.21% to 3,284.23 while the CSI300 index decreased 0.45% to 3,960.17. The Hang Seng Index was down 2.09% to 19,560.57.

FROM THE PRESS: Beijing should prioritise expanding employment to achieve economic development and social stability, according to Zhang Yiqun, vice chairman of the Performance Management Special Committee of the Chinese Society of Fiscal Finance. Speaking with Securities Daily, Zhang said policies are needed to address the industrial recovery and export sector which had added to labour market pressure. Recent unemployed graduates were the most urgent concern, he said. SMEs and entrepreneurs need support to aid their recovery which will drive employment opportunities.

Major pork producers will remain financially strained in Q2 as prices stay low, and demand slowly recovers, according to Yicai. The news agency said many companies plan to issue convertible bonds and cut costs to survive the difficult time. In Q1, major firms in the sector lost CNY6.7 billion in net profit, as prices averaged around USD14 per kg, below the break even point of between USD15-18 depending on producer. One company Yicai interviewed was optimistic about the third and fourth quarter, as firms lower their supply output, forecasting prices could exceed CNY22 per kg in some months.

China’s economy likely grew between 4.5-5% in April, according to analysts interviewed by 21st Century Herald. Analysts said the industrial sector recovered slower than the service industry and that Tuesday’s data release showed growth lower than potential output. Authorities must do more to boost demand, they said. Credit was used in the past to boost demand in previous economic cycles which led to higher debt, however, fiscal policy should be more active to boost consumption.