MNI China Daily Summary: Wednesday, August 11

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Wednesday. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.1259% from the close of 2.3561% on Tuesday, Wind Information showed. The overnight repo average fell to 2.0243% from the previous 2.2205%.

YUAN: The currency weakened to 6.4870 against the dollar from 6.4807 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.4831, compared with the 6.4842 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.9150%, up from Tuesday's close of 2.9075%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.08% at 3,532.62, while the CSI300 index decreased 0.55% to 5,015.34. Hang Seng Index gained 0.20% to 26,660.16.

FROM THE PRESS: The PBOC is expected to boost liquidity by increasing reverse repo operations or rolling over the maturing medium-term lending facilities when the anticipated rise in local government bond sales drains liquidity, the China Securities Journal reported citing analysts. About CNY1 trillion local government bonds are expected to be issued in August, mainly concentrated in the second half of August, the newspaper said. This may pressure liquidity along with the maturing of CNY700 billion of MLFs as of Aug. 17 as well as the upcoming season of tax payments, the newspaper cited analysts as saying.

China should expand the scope of yuan pricing and settlement, and facilitate the use of yuan in cross-border trade and finance to promote the internationalization of yuan, the China Securities Journal reported citing Tu Yonghong, deputy director of the International Monetary Institute at Renmin University. China should facilitate the use of yuan when conducting direct investment overseas by adopting a "closed-loop" yuan-based capital flow, the journal said citing Tu. Yuan settlement accounted for only 14.7% of China's foreign trade in H1, the newspaper said citing Guan Tao, a former FX regulatory official.

More local Chinese governments are expected to recapitalize their regional small banks through selling the so-called special purpose bonds mandated by the Ministry of Finance, the Shanghai Securities News said. This form of recapitalization can burden regional governments with bad debt should these local banks, often with lower credit ratings, run into operational difficulties, the newspaper said. So far this year, eleven provinces have sold such bonds worth CNY112 billion, including Tianjin's CNY9.3 billion offering and CNY7.7 billion by Inner Mongolia, the newspaper said. The finance ministry in November allocated CNY200 billion quotas to be used by 18 provinces for the capitalization purpose, the newspaper said.