MNI China Daily Summary: Monday, August 17

EXCLUSIVE: Shanghai is maneuvering to become the major beneficiary of Beijing efforts to build yuan usage in international trade, hoping to take advantage of China's swifter recovery from the Covid crisis speeding up closer regional commercial ties, academics have told MNI. Setting up Shanghai as an offshore financial center and at the heart of the yuan internationalisation strategy is under discussion by financial scholars, said Yang Di, a researcher at the Shanghai Academy affiliated to China Association of Social Science and Shanghai city government.

POLICY: China will encourage domestic companies' to use their medium and long-term foreign debt to expand inflows of longer term capital, promoting investment and stabilising growth, said Meng Wei, spokeswoman of the National Development and Reform Commission at a briefing. Chinese corporates' foreign debt rebounded significantly in June and July by a total $45.92 billion, helped by the country's accelerated recovery in production and by foreign investors' increased confidence in the Chinese economy, said Meng.

POLICY: China's chief banking regulator has called on commercial banks to deal with non-performing assets as soon as possible and has warned of a strong resurgence in shadow banking if regulations are relaxed. In an article published in Qiushi Magazine, Guo Shuqing, the Chairman of the China Banking Regulatory Commission, urged financial institutions to take more cautious accounting measures to expose NPLs and increase loan provisions and capital.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY700 billion via one-year medium-term lending facility (MLF) with the rate unchanged at 2.95%. This aims to roll over the CNY550 billion of MLFs maturing this month and fully meet the liquidity needs, the PBOC said on its website. The PBOC also injected CNY50 billion via 7-day reverse repos with the rate unchanged. These operations resulted in a net injection of CNY200 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.2093% from Friday's close of 2.2098%, Wind Information showed. The overnight repo average fell to 2.1142% from 2.1665% on Friday.

YUAN: The currency strengthened to 6.9417 against the dollar from Friday's close of 6.9498. The PBOC set the dollar-yuan central parity rate lower at 6.9362, down from Friday's 6.9405, hitting the lowest level since March 9.

BONDS: The yield on 10-year China Government Bonds was last at 2.9350%, up from Thursday's close of 2.9348% according to Wind Information.

STOCKS: The Shanghai Composite Index rallied 2.34% to 3,438.80. The CSI300 index increased 2.35% to 4,815.23. The Hong Kong's Hang Seng Index slightly gained 0.65% to 25,347.34.

FROM THE PRESS: The PBOC may roll over all of the CNY550 billion in medium-term lending facilities (MLFs) maturing this month given that the large issuance of local government bonds also drains liquidity, the China Securities News reported citing analysts. The central bank is likely to maintain the MLF rates and keep liquidity with reverse repo operations as it fine tunes monetary policy, the newspaper said.

China's infrastructure investment in 2020 is likely to record a double-digit growth following the expected rebound through December, the China Securities News reported. More projects are kicking off as the rainy season ends, a development confirmed by the recent increase in the demand for steel, cement and excavators, the newspaper said. Nearly CNY1 trillion in local government special bonds set to be issued in August will help to lift the investment, the newspaper said citing analysts. As of July 31, over 60% of the new LGBs were invested in infrastructure projects, 30 pp higher than a year ago, the newspaper said citing data by Zhongtai Securities.

China reported its first patent of a vaccine against the Covid-19 virus which can be mass-produced, the Beijing Youth Daily reported. Named Ad5-nCoV, the vaccine was developed by a research team led by Chen Wei at the Military Science Academy in conjunction with CanSino Biologics. The vaccine has proved its efficacy in previous trials and is entering phase III clinical trails, reported the Daily.

China's real estate sector is likely to show steady growth in H2 due to increased investment and policy measures, reported the People's Daily. Demand is seen rising as post-pandemic recovery continues and the financing environment improves, the Daily reported citing Ma Hong, a researcher from the Zhixin Investment Research Institute. Housing prices are likely to remain steady as governments introduce land and home supply measures to curb excessive gains, said Ma.