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MNI CHINA LIQUIDITY INDEX: China Economic Sentiment Weakens

(MNI) Beijing

China’s interbank market liquidity tightened in April but remained ample, as the People’s Bank of China (PBOC) moved to stabilise conditions following Q1’s fast expansion, and firms withdrew funds to meet tax deadlines. Local traders reported economic sentiment falling as Q1 data showed an uneven recovery and weak consumer prices, the latest MNI China Liquidity Survey showed.

The MNI Liquidity Condition Index reached 51.3 in April, up from 37.5 last month, as 23.7% of traders reported conditions tightened, but 55.3% said they were unchanged from March's ample environment.

The higher the index reading, the tighter liquidity.

“The market usually experiences liquidity turbulence in April due to tax deadlines,” a trader in Shanxi told MNI, who also said less tax cuts this year may have amplified the disturbance.

This month the PBOC said it would focus on stabilising credit supply after Q1’s rapid growth, whilst maintaining enough liquidity to consolidate the recovery.

Interpreting the PBOC’s Q2 outlook, economists told MNI they expect more targeted measures after the initial phase of the recovery saw a broader approach. (See MNI PBOC WATCH: LPR Rate Seen Held Steady - Bonds & Currency News | Market News)

The People’s Bank of China conducted CNY170 billion in MLF in April, injecting CNY20 billion over CNY150 billion in maturities. The PBOC drained net CNY633 billion via its open market operation as of April 25, MNI calculated.

The MNI PBOC Policy Bias Index showed 78.9% of traders believed the official policy stance would be maintained.


The MNI Economy Condition Index remained positive at 68.4, but was down from 75.0 and 78.4 seen in March and February. Q1 GDP equalled MNI’s forecasted growth of 4.5%, data last week showed. (See MNI BRIEF: China GDP Up 4.5% Y/Y In Q1 - Bonds & Currency News | Market News

“The service sector has recovered quickly, but industrial recovery, fixed asset investment and unemployment remains soft,” a trader in Henan said.

March’s subdued CPI data also raised concerns. “We expected a stronger CPI print in Q1, but the actual print was soft. Coupled with low industrial operating rates this could reflect deeper problems,” said a Fujian-based trader.

The consumer price index rose 0.7% y/y in March, slower than February’s 1%.

Looking forwards, policy experts told MNI authorities should adopt a flexible approach given the rebound was not secure (See MNI PBOC WATCH: Policy Rate Stable, Property Market On Watch - Bonds & Currency News | Market News)

For Q1 retail sales increased 10.6%, fixed-asset investment was up 5.1%, and exports rose 8.4%. However, youth unemployment remained high at 19.6%, industrial production increased only 3.0%, and private investment 0.6%.


MNI’s 7-Day Repo Rate Index was 63.2 in April, from the previous 63.9, with 52.6% of participants seeing the rate curve climb in the next two weeks.

“Rates will increase as tax payments this month cause turbulence, as well as a huge maturity of reverse repos,” said a Shandong-based trader.

MNI’s 10-year CGB Yield Index was 53.9, down from 61.1 , with 23.7% seeing a slide in the curve following the lower-than-expected CPI and PPI data, while 31.6% traders expected yields to rise.


Asked by MNI “Do you think the current economy is experiencing deflation?” 73.7% of traders said no and 15.8% yes with the remainder uncertain.

“CPI fluctuations are normal – the current low print is mainly driven by increasing supply,” a Shanghai-based trader said.

The MNI survey collected opinions of 38 traders at financial institutions operating in the interbank market, the country's main platform for fixed income and currency instruments, and the main funding source for financial institutions. Interviews were conducted April 10 – April 21.

The full report is available as a PDF:

MNI China Liquidity Index May 2023.pdf

For full database history and full report on the MNI China Liquidity Index™, please

MNI Beijing Bureau |
MNI Beijing Bureau |

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