MNI China Daily Summary: Thursday, August 15

EXCLUSIVE: Local governments will struggle to implement China’s new growth-orientated urbanisation policy due to tight fiscal resources and a weak labour market, raising doubt over whether the plan will boost domestic demand as much as stated by policymakers, advisors told MNI.

POLICY: The People’s Bank of China (PBOC) has delayed the monthly operation of its medium-term lending facility, further downplaying its role as a key policy rate. The PBOC will conduct the operation on Aug 26, while a total of CNY401 billion of one-year MLF will mature this month, according to a statement on the central bank’s website.

POLICY: China's producer price index decline will narrow in H2 from July's 0.8% decrease, given a forecasted reduction of price change effects, Liu Aihua, spokesperson at the National Bureau of Statistics, said at a press conference. However, Liu expected fluctuations in PPI given international commodity price trend uncertainty and the continued adjustment in the real-estate market.

DATA: Retail sales grew 2.7% y/y in July, accelerating from June's 2.0% gain and in line with the 2.7% forecast. Industrial production rose 5.1% y/y, decelerating for the third month from June's 5.3% growth and underperforming the expected 5.4%. Fixed-asset investment registered a 3.6% y/y increase in the first seven months, the slowest this year, moderating from the 3.9% growth over H1 and missing the 3.9% consensus.

LIQUIDITY: The PBOC conducted CNY10.37 billion via 7-day reverse repos, with rates unchanged at 1.70%. The operation led to a net drain of CNY224.73 billion after offsetting CNY235.1 billion in maturities, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.8306% from 1.8799% on Wednesday, Wind Information showed. The overnight repo average decreased to 1.7571% from the previous 1.8499%.

YUAN: The currency weakened to 7.1611 against the dollar, from 7.1484 at Wednesday's close. The PBOC set the dollar-yuan central parity rate lower at 7.1399, compared with 7.1415 set on Wednesday. The fixing was estimated at 7.1464 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.1800%, up from Wednesday's close of 2.1748%, according to Wind Information.

STOCKS: The Shanghai Composite Index gained 0.94% to 2,877.36, while the CSI300 index edged up 0.99% to 3,341.95. The Hang Seng Index was down 0.02% to 17,109.14.

FROM THE PRESS: The PBOC could further intervene in the bond market to stem a plunge in long-dated treasury yields, as it aims to curb accumulated risks behind the rapid decline in interest rates, 21st Century Business Herald reported, citing analysts. The PBOC could directly tighten liquidity, borrow treasuries to sell, keep ordering “window guidance” or impose additional regulatory measures, the newspaper said, citing analysts from Huatai Securities. The Herald noted that commentary published by a PBOC-run newspaper Wednesday vowed to crack down on illegal activities disrupting market order, which pushed the 10-year treasury yield to 2.1850% from the intraday low of 2.1700%.

China will ensure the national treatment of foreign enterprises and treat them equally in government procurement and industry supervision, said Vice Minister of Commerce Ling Ji at a meeting on Wednesday. China will provide equal treatment in programmes of equipment upgrade and trade-in of consumer goods and promote the orderly expansion of opening up in the telecommunications, internet, education, culture and medical sectors, Ling said. The ministry will help resolve difficulties in project approval, land use, environmental assessment, energy consumption and financing for foreign-invested projects, he added. (Source: MOFCOM website)

High-net-worth individuals want to buy new luxury homes in core areas of first-tier cities, which they believe will hold their value, 21st Century Business Herald reported. A luxury housing project developed by Sunac in Shanghai selling at CNY171,000 per square meter received a subscription rate of 183%, the newspaper said. This shows wealthy customers believe these properties will return greater value than investment in the equity market, the newspaper said, citing an unnamed account director of a wealth management institution.