MNI China Daily Summary: Friday, June 9

EXCLUSIVE: Greater-than-expected economic headwinds are putting pressure on the People’s Bank of China (PBOC) to ease policy, with its recent guidance for banks to lower interest on deposits indicating a likelihood of a cut to its medium-term lending facility rate as soon as next week, policy advisors and analysts told MNI.

POLICY: China's Consumer Price Index gained 0.2% y/y in May, matching consensus and up from April’s 0.1% y/y print, data from the National Bureau of Statistics.

LIQUIDITY: The PBOC conducted CNY2 billion via 7-day reverse repos on Friday, with the rates unchanged at 2.00%. The operation kept the liquidity unchanged 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: China's seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.8130% from 1.7966%, Wind Information showed. The overnight repo average decreased to 1.2552% from the previous 1.3332%.

YUAN: The currency strengthened to 7.1241 against the dollar from 7.1275. The PBOC set the dollar-yuan central parity rate lower at 7.1115 on Friday, compared with 7.1280 set on Thursday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7200%, down from 2.7400% at Thursday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.55% to 3,231.41 while the CSI300 index increased 0.43% to 3,836.70. The Hang Seng Index was up 0.47% to 19,389.95.

FROM THE PRESS: Policymakers should deepen the reform and opening of economic and social systems to revitalise the financial system and the economy, according to an editorial by Yicai. China’s system creates high real interest rates which represses the private economy, while powerful state-owned firms benefit from lower interest rates. The banking sector shows signs of asset shortages as deposit and loan spreads have narrowed. Looking forward, financial firms will face pressure from increased non-performing loans, as the economy’s macro-leverage ratio increased by 8.6pp in Q1 2023.

Shanghai will make further reforms to its financial centre aimed at high-quality development, according to Tu Guangshao, chairman of the Shanghai Institute of New Finance. Speaking at the Lujiazui Forum, Tu said the local government would develop the Shanghai International Financial Center 3.0, with policies to promote technological and green innovation. Authorities would expand the wealth management industry, to suit the needs of people and the real economy, Tu said. Shanghai’s finance industry would take the lead on reforms to asset-price mechanisms and risk-management functions. (Source: Yicai)

China will launch activities to promote the consumption of new energy vehicles, according to the Ministry of Commerce (MOFCOM). The ministry will encourage financial companies to improve access to automobile credit as part of the measures. MOFCOM said rural areas will receive support to train more maintenance engineers and increase infrastructure for maintenance and charging. Additionally, the government will coordinate with relevant departments to expand rural charging piles and power grid support, the announcement said. (Source: 21st Century Herald)