MNI China Daily Summary: Monday, Aug 19

POLICY: China's Loan Prime Rate will likely remain unchanged on Tuesday following July's cut, but continued weak demand will weigh on credit and challenge Beijing's economic targets, which may push the central bank to ease later this year.

LIQUIDITY: The PBOC conducted CNY52.1 billion via 7-day reverse repos, with the rate unchanged at 1.70%. The operation led to a net drain of CNY22.4 billion after offsetting maturities of CNY74.5 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7315% from 1.8357%, Wind Information showed. The overnight repo average decreased to 1.6910% from 1.6997%.

YUAN: The currency strengthened to 7.1383 against the dollar from the previous close of 7.1680. The PBOC set the dollar-yuan central parity rate lower at 7.1415, compared with 7.1464 on Friday.

BONDS: The yield on 10-year China Government Bonds was last at 2.1050%, down from 2.1150% at the previous close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.49% to 2,893.67 while the CSI300 decreased 0.34% to 3,356.97. The Hang Seng Index fell 0.80% to 17,569.57.

FROM THE PRESS: Bank deposits fell in July as deposit rates were reduced, pushing funds into wealth management and treasury bonds, according to Zhou Maohua, macro researcher at Everbright Bank. Data showed RMB deposits increased by CNY10.7 trillion in the first seven months, down from CNY11.5 trillion during H1, while CITIC Securities noted that July saw wealth management funds increase by about CNY1.78 trillion. Zhou said deposit rates could fall further in H2 but this will not lead to a widescale re-allocation of deposits given that the return gap between bank deposits and wealth management products was not large.

Utilised foreign investment reached CNY539.5 billion in July, down 29.6% y/y, according Ministry of Commerce data. The Foreign Investment Department stressed that quality of investment should also be considered alongside quantity, as well as the overall development of foreign-funded enterprises. In July, the ministry recorded 31,654 newly-established foreign firms, up 11.4% y/y. Manufacturing industry FDI hit CNY154.5 billion, accounting for 28.6% of the total, up 2.9 percentage points y/y.

Government policy to expand market access and remove entry barriers aims to provide foreign-funded enterprises with a sense of gain, Li Xuzhen, deputy representative of international trade negotiations at the Ministry of Commerce for international Trade, has said. Speaking at a press conference, Li noted that foreign capital was important for modernisation. In future, China will relax market access, issue a new negative list for overseas investment access as soon as possible and remove all restrictions in the manufacturing sector, Li continued.