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MNI China Daily Summary: Friday, May 12
LIQUIDITY: The People's Bank of China (PBOC) conducted CNY2 billion via 7-day reverse repos, with the rates unchanged at 2.00%. The operation has led to a net drain of CNY1 billion after setting off the maturity of CNY3 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 1.8089% from 1.7703%, Wind Information showed. The overnight repo average increased to 1.3158% from the previous 1.1021%.
YUAN: The currency weakened to 6.9506 against the dollar from 6.9396 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.9481, compared with 6.9101 set on Thursday.
BONDS: The yield on 10-year China Government Bonds was last at 2.7600%, up from 2.7530% at Thursday's close, according to Wind Information.
STOCKS: The Shanghai Composite Index edged down 1.12% to 3,272.36 while the CSI300 index fell 1.33% to 3,937.76. The Hang Seng Index was down 0.59% to 19,627.24.
FROM THE PRESS: China’s CPI increased by 0.1% y/y in April which shows economic confidence remains subdued and the economy needs fiscal policy support to boost domestic demand, according to analysts interviewed by 21st Century Herald. Consumption has led the recovery, but the service sector requires policy support to ensure the expansion of employment and raise incomes, according to one analyst. Several regions have begun major projects but are mostly focused on high-end manufacturing industries such as new energy and chips. The government needs to address weak prices, which hurts firms profits and private investment, Yicai said.
China’s economy will experience continued low production and weak demand recovery in H2, as the government has not given any indication it will change policy, leading to low bond yields, according to analysts interviewed by 21st Century Herald. The economy has shown positive signs of recovery in Q1, but bond yields have remained down. The mid- to long-term growth trajectory, given the uneven rebound, has analysts concerned. The central bank has not began tightening rates and investment firms have increased bond allocations as residents' financing needs have not yet recovered, which has contributed to falling yields and divergence with fundamentals, the news outlet said.
Shanghai’s offline consumption during the May holiday period recovered to 90% of 2021 levels and increased 6.2% over 2019, according to Zhang Guohua, deputy director of Shanghai Municipal Commission of Commerce. Speaking with Yicai, Zhang said the city has added 375 new physical stores between January and April. In Q1, Shanghai's use of foreign investment increased 28.1% y/y, with high-tech industries growing at 45.9%, and 16 multinationals opened up new regional headquarters. Looking forwards, Shanghai will continue to prioritise expanding consumption and boosting foreign investment, Zhang said.
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