MNI China Daily Summary: Monday, July 4

POLICY: China will allow international investors to access its interest-rate derivatives market through Hong Kong, following the announcement of the so-called "Swap Connect" by the People's Bank of China (PBOC) on Monday. Such a scheme, based on interconnectivity infrastructure similar to Bond Connect, is beneficial to meeting the interest rate risk management needs of investors, said PBOC Deputy Governor Pan Gongsheng in a speech to celebrate the fifth anniversary of Bond Connect. The scheme will start in six months, pending regulatory approvals and market readiness, according to a statement on the PBOC website.

LIQUIDITY: The PBOC injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation has led to a net drain of CNY97 billion after offsetting the maturity of CNY100 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.0162% from 1.6748% on Friday, Wind Information showed. The overnight repo average rose to 1.7212% from the previous 1.4208%.

YUAN: The currency strengthened to 6.6965 against the dollar from 6.7006 on Friday. The PBOC set the dollar-yuan central parity rate higher at 6.7071, compared with 6.6863 set on Friday.

BONDS: The yield on 10-year China Government Bond was last at 2.8850%, up from the previous close of 2.8675%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.53% to 3,405.43 while the CSI300 index gained 0.66% to 4,496.03. Hang Seng Index edged down 0.13% to 21,830.35.

FROM THE PRESS: China’s policy-based and developmental financial bonds with a combined scale of CNY300 billion announced by the State Council last week, will be used to boost infrastructure such as transportation and water conservancy, innovation and other regional projects, an official from the PBOC told the official newspaper Financial News. The PBOC will take the lead in supporting the China Development Bank and the Agricultural Development Bank of China to raise the funds and the central government will give an appropriate interest discount for two years, the official said. Such instruments are conducive to guide financial institutions to issue medium and long-term low-cost loans to support project construction without resorting to excessive money supply, the official said.

The PBOC may further guide down the Loan Prime Rate, mainly the five-year one, in the second half of the year to help boost housing mortgages and stabilise market expectations, the Securities Daily reported citing analysts. The PBOC will also use structural monetary policy tools, such as issuing additional re-lending tools for industries affected by the pandemic, the newspaper said citing Ming Ming, chief economist of CITIC Securities. The PBOC may also increase loan support for private enterprises faced with the dilemma of closing down or reducing production which in turn causes supply chain interruptions, the newspaper said citing Ming.

China will further open up its bond market to international investors while improving macro-prudential management, strengthening supervision of cross-border capital flows, and conducting real-time monitoring of the market, Pan Gongsheng, deputy governor of the PBOC wrote in an article published in the official China Finance magazine. It will also build a systemic risk monitoring, assessment and early warning mechanism to ensure financial security, said Pan. By the end of May, foreign investors held CNY3.74 trillion of Chinese bonds, up CNY2.81 trillion from five years ago before the launch of the Bond Connect Scheme with Hong Kong, according to the article.