MNI China Daily Summary: Wednesday, May 22

EXCLUSIVE: The People’s Bank of China (PBOC) will consider cutting the reserve requirement ratio as soon as this quarter as it aims to support the accelerated issuance of government bonds while enhancing control over idle funds, policy advisors and economists told MNI.

POLICY: Beijing wants dialogue with the EU to resolve trade issues over increased protectionism, Wang Wenbin, spokesperson for the Ministry of Foreign Affairs, told reporters. When asked for comment on the EU's possible move to formally impose tariffs on Chinese electric vehicles, Wang said protectionism would not solve the trading bloc's issues.

POLICY: British firms in China have not seen a "meaningful opening up" despite government efforts aimed at boosting foreign business environment, according to the British Chamber of Commerce annual sentiment survey published Wednesday.

LIQUIDITY: The PBOC conducted CNY2 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led to no change to the liquidity after offsetting the CNY2 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8421% from the close of 1.8470% on Tuesday, Wind Information showed. The overnight repo average rose to 1.7791% from 1.7639%.

YUAN: The currency weakened to 7.2396 against the dollar from Tuesday's close of 7.2370. The PBOC set the dollar-yuan central parity rate higher at 7.1077, compared with 7.1069 set on Tuesday. The fixing was estimated at 7.2372 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.3110%, up from Tuesday's close of 2.3100%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index edged up 0.02% to 3,158.54, while the CSI300 index rose 0.23% to 3,684.45. The Hang Seng Index down 0.13% to 19,195.60.

FROM THE PRESS: Several cities including Wuhan and Hefei have lowered housing mortgage rates to 3.25-3.45% for first-time buyers following the People’s Bank of China’s move to scrap the lower limit of the rates last week, China Securities Journal reported. Banks are also prepared to cut the down-payment ratio to align with the policy floor set by the PBOC – no less than 15% and 20% for first- and second-time purchase, depending on sales performance, the newspaper reported citing an unnamed industry insider. With down-payments and interest rates dropping to low levels, further stimulus may focus on tax concessions for home purchases, the Journal said citing Zhao Wei, chief economist of Sinolink Securities.

Government real estate support may stabilize declines in local government land sale revenue in H2, after falling 21% in April y/y, according to Luo Zhiheng, chief economist at Yuekai Securities. Zhao Wei, chief economist at Guojin Securities, said fiscal intensity in H2 depended on land sale revenue performance, but analysts needed time to assess the impact of recent policy support. Looking ahead, government expenditure will benefit from increased issuance of special bonds and ultra-long-term bonds in May and June, Zhao added.

Authorities must coordinate to prevent and control interwoven risks involving real estate, local-government debt, and small and medium-sized financial institutions, Vice Premier He Lifeng has told senior government leaders at a financial conference in Beijing. Premier Li Qiang said officials must ensure financial services serve the real economy, make reforms to the local financial management system, and prevent systemic financial risks. (Source: 21st Century Business Herald)