MNI China Daily Summary: Thursday, August 12

EXCLUSIVE: China needs to take policy steps to balance the economy for a tough year ahead heightened by a Politburo warning in July of "uneven" and "unstable" economic conditions, a former PBOC Monetary Policy Committee member told MNI. Huang Yiping, now deputy dean of National School of Development at Peking University, said it "makes sense" that more monetary policy support is needed, particularly when Total Social Financing (TSF), a broad measure of credit and liquidity, is rising at a slower pace.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2% on Thursday. The operation left liquidity unchanged given it netted off CNY10 billion reverse repos maturing 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) decreased to 2.1196% from 2.1254% on Wednesday, Wind Information showed. The overnight repo average fell to 1.9447% from the previous 2.0244%.

YUAN: The currency strengthened to 6.4771 against the dollar from 6.4870 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.4754, compared with the 6.4831 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.8850%, down from Wednesday's close of 2.9075%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.22% to 3,524.74, while the CSI300 index decreased 0.84% to 4,973.35. Hang Seng Index lost 0.53% to 26,517.82.

FROM THE PRESS: China's July manufacturing investment is likely to have kept a strong momentum, while infrastructure investment may also improve, the Economic Information Daily reported citing forecasts by securities firms and banks. Industrial output may have expanded 7.8% y/y in July, or 6.3% when compounded over the last two years compared with 2019, the newspaper said citing Chief Economist Li Chao of Zheshang Securities. July's retail sales was forecast to grow 11.9%, or 5.2% if averaged over the last two years, the daily cited Chief Analyst Zhang Yu of Huachuang Securities Research. The impact from the Covid-19 outbreaks in July were likely to be limited, Zhang was cited as saying.

The PBOC's trial policy announced yesterday, which cancels the mandatory ratings on offering debt instruments by the non-financial companies starting Aug. 11, showed the central bank's resolve in reining in unqualified external rating agencies, widely criticized by the financial industry for inaccuracies, the 21st Century Business Herald reported citing industry insiders. Regulatory authorities have issued a series of policies to make credit rating agencies accountable to the market, which may cause the agencies to lose as much as 40% of their revenues, the newspaper said citing an industry insider. Normally, debt financing instruments issued by non-financial enterprises have to be rated by a bond rating agency registered in China.

A slowdown in Chinese companies' longer-term loans for the first time this year signaled a weakening demand for financing by the manufacturing sector, even as the government continued to pump more credit to sustain the economy, the Securities Times reported citing analysts. The increase in new corporate medium and long-term loans in July is CNY103.1 billion less than that in the same period last year, the newspaper said. Aggregate financing in July dropped, reflecting a crackdown on off-balance sheet financing and weaker government bond financing, the newspaper said citing Wen Bin, the chief researcher with Minsheng Bank. China's money supply, credit, and social financing data may, however, rebound in August helped by the boost from the PBOC's RRR cut announced in July, and as macro policies tilt to easing to stabilize growth, the newspaper said citing analyst Wang Qing of Golden Credit Rating.