MNI China Press Digest Aug 16: MLF, Yuan, Local Bonds

The following lists highlights from Chinese press reports on Monday:

• The PBOC may not fully renew the maturing CNY700 billion MLF this month, even as the central bank is expected to inject some liquidity, the China Securities Journal said citing analyst Ming Ming of Citic Securities. The PBOC may continue to use the funds unlocked from the July RRR cut to help renew the MLF, Ming was cited saying. While another RRR cut in Q4 is possible, there isn't enough driver for an interest rate cut as expected by some market participants encouraged by the July RRR cut, the official securities newspaper said. The market may have overestimated the PBOC's loosening intention, and could face a correction should the central bank keeps the August MLF rate unchanged, the journal said.
• The yuan may face less pressure to gain should China's service trade deficit widens back to its normal pattern, Guan Tao, the global chief economist of BOC Securities, wrote in an analysis on Yicai.com. If domestic demand steadily recovers, imports may accelerate, bringing down current account surplus, Guan wrote. More imports will also increase transportation costs, further widening the usual deficit in transportation service, a trend evident in Q2, said Guan. There may be more outbound Chinese travellers as vaccinations enable some countries to reopen borders, while China's tougher pandemic controls deter inbound traffic, Guan wrote. This may result in more tourism spending overseas than incomes from inbound travers, said Guan.
• China is expected to accelerate the sales of local government special-purpose bonds in H2, resulting in CNY2.75 trillion total investment in infrastructure this year, the Economic Information Daily said in a front-page report. The local government bonds will stimulate the economy while the transportation and industrial parks that they funded will improve productivity and reduce costs, the newspaper said citing Luo Zhiheng, the chief macro analyst of Yuekai Securities. Manufacturing investment is also expected to increase due to higher costs of industrial products and credit support, the newspaper said citing Zheshang Securities.