MNI China Daily Summary: Monday, August 21

EXCLUSIVE: China seems inclined to deal with property developers’ debt risks using broad stimulus to boost home sales and ensure delivery of unfinished housing projects, rather than by bailouts which risk fomenting moral hazard, advisors told MNI after a warning over missed bond payments from Country Garden, formerly the country’s largest developer by sales.

EXCLUSIVE: A new wave of debt problems hitting Chinese property developers has shaken the confidence of foreign investors in what they had assumed was an implicit guarantee for high-quality developers following the introduction of the government’s “three arrow” support plan in 2022, fund managers and lawyers told MNI.

BRIEF: China's one-year Loan Prime Rate was cut to 3.45% from 3.55% to guide down funding costs, but the reduction was smaller than expected with the five-year LPR kept stable.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY34 billion via 7-day reverse repos, with the rates unchanged at 1.80%. The operation led to a net injection of CNY28 billion after offsetting the maturity of CNY6 billion in reverse repos today, according to Wind Information. The operation aims to keep banking system 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 1.8857% from 1.9221%, Wind Information showed. The overnight repo average decreased to 1.9445% from 1.9354%.

YUAN: The currency weakened to 7.3139 against the dollar from previous close of 7.2896. The PBOC set the dollar-yuan central parity rate lower at 7.1987, compared with 7.2006 set on Friday. The fixing was estimated at 7.2867 by a Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.5930%, down from 2.6100% at the previous close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 1.24% to 3,092.98, while the CSI300 fell 1.44% to 3,729.56. The Hang Seng Index was down 1.82% to 17,623.29.

FROM THE PRESS: The People’s Bank of China has called for stronger coordination between departments to prevent and defuse debt risk, according to Yicai. At a recent meeting with the State Administration of Financial Supervision, policymakers agreed to enhance the stability of financial support for the real economy and focus on assistance for SMEs, green development, technological innovation, and manufacturing. Leaders noted the country was exhibiting a wave-like pattern of economic recovery. The meeting was attended by Pan Gongsheng, party secretary and president at the PBOC.

The A-share market represents more opportunities than risks as it nears its bottom with new support policies taking affect, according to a report by China International Capital Corporation. The China Securities Regulatory Commission unveiled a package of measures Friday to boost the equity market's "vitality, efficiency and appeal". Measures included a reduction in trade costs, share buyback support and the development of equity funds. The relaxation of registration requirements for index funds will help increase long-term funds in the market, conducive to the establishment of value investing and promoting more reasonable prices, said Chen Li, chief economist at Chuancai Securities. (Source: Economic Information Daily)

China’s economy shows signs of recovery despite short-term difficulties, according to economists interviewed by Securities Daily. Economists noted high-tech industrial investment increased 11.5% y/y, 8.1 pp more than total fixed asset investment, showing industrial transformation was coming along quickly. Additionally, in May and June the surveyed urban unemployment rate was lower than that of the same period last year and CPI inflation remained relatively stable. Economists expect the economy to stabilise by the end of Q3, and reach the annual growth target of 5%.