MNI China Daily Summary: Monday, September 04

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY12 billion via 7-day reverse repos on Monday, with the rates unchanged at 1.80%. The operation has led to a net drain of CNY320 billion after offsetting the maturity of CNY332 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: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7436% from 1.8003%, Wind Information showed. The overnight repo average decreased to 1.5179% from 1.6688%.

YUAN: The currency weakened to 7.2714 against the dollar from previous close of 7.2633. The PBOC set the dollar-yuan central parity rate lower at 7.1786, compared with 7.1788 set on Friday. The fixing was estimated at 7.2753 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6850%, down from 2.6900% at the previous close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 1.40% to 3,177.06, while the CSI300 increased 1.52% to 3,848.95. The Hang Seng Index was up 2.51% to 18,844.16.

FROM THE PRESS: China will continue opening its financial industry while maintaining financial security and stability, according to Jin Zhongxia, director-general at the International Department of the People's Bank of China. Speaking at the China International Financial Annual Forum, Jin noted the global economy saw more than 3% of payments made using yuan during July and cross border traders used the currency for 24% of goods trade between Jan-July. Overseas entities now hold offshore yuan assets totaling CNY9.8 trillion, and China has recently shown the largest improvement in the OECD's index of restrictions on foreign direct investment in the financial industry. (Source: Yicai)

China should make use of existing fiscal and monetary policy to respond to economic difficulties, according to Guan Tao, former director at the State Administration of Foreign Exchange. Guan noted policymakers are not constrained by inflation which allows them space to intensify monetary and fiscal measures. Although the government did not meet market expectations to increase the deficit ratio and issue more special government bonds, the measures to accelerate local government special bonds issuance and improve tax policies had made a difference. In future, Guan expects further policy announcements on local government debt reduction plans, noting the central government has a low debt burden and therefore has room to deal with local fiscal risks. (Source: Yicai)

The housing market in major cities will usher in an upward trend following the recent relaxation of mortgage lending rules by four tier-one cities. Home sales in Sept and Oct, the traditional peak season, will likely rise as first-home buyers enjoy preferential mortgage rates regardless of their previous credit records, which will restore market sentiment. Homeowners in Beijing are rushing to sell their first house, as authorities give replacing a new home the same treatment as a first home purchase and the down-payment ratio reduces to 40% from 80%. The transaction volume of second-hand houses in Beijing on Sept 2 was about 1,200 units, a rise of more than 100% compared to less than 600 units last Saturday, according to data by Centaline Property. (Source: Securities Times)