MNI China Daily Summary: Friday, August 5

POLICY: China’s expected further opening to foreign investors in domestic markets should boost yuan demand and lead to wider global use of the currency in both trade and investment settlement, economists and analysts said.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY2 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 1.2963% from 1.2953% on Thursday, Wind Information showed. The overnight repo average fell to 1.0172% from the previous 1.0212%.

YUAN: The currency slightly strengthened to 6.7507 against the dollar from 6.7562 on Thursday. The PBOC set the dollar-yuan central parity rate lower at 6.7405, compared with 6.7636 set on Thursday.

BONDS: The yield on 10-year China Government Bond was last at 2.7325%, up from Thursday's close of 2.7190%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 1.19% to 3,227.03 while the CSI300 index gained 1.35% to 4,156.91. Hang Seng Index edged up 0.14% to 20,201.94.

FROM THE PRESS: China’s July exports will remain robust with double-digit growth likely around 15% y/y in U.S. dollar terms, supported by the supply advantage of China’s manufacturing industry, the China Securities Journal reported citing analysts. The throughput of foreign trade goods at coastal ports monitored by the China Port Association increased by 6.3% y/y, reversing June’s 3.4% fall, the newspaper said. External demand is still guaranteed with the U.S. and Japan’s July manufacturing PMI in the expansionary zone and high prices amid overseas inflation will continue to form certain support for China’s exports. China Customs is set to release July trade data on Sunday.

China’s new loans in July likely remained relatively strong, with analysts predicting from CNY1.1 to 1.6 trillion, following the unexpectedly robust growth of CNY2.81 trillion in June, the Securities Daily reported citing analysts. The medium and long-term loans of enterprises will increase as rescue and pro-growth policies kick in. But individual loans may not see improvement due to risk events in the real estate sector, the newspaper said citing analysts. July aggregate finance may also be slightly above CNY1 trillion, supported by still large government bond sales, compared to June’s CNY5.17 trillion, the newspaper said citing analysts. The central bank is set to release July financial data next week.

The Chinese economy may face greater downward pressure in Q4 without major incremental policy steps in the face of economic weakness and higher prices, wrote Wu Ge, chief economist of Changjiang Securities in a blog post. CPI growth may accelerate to break the 3% ceiling early Q3 amid rising pork and vegetable prices. A downturn in exports is likely, though shipments are resilient in the short term under a low base, said Wu. There is a possibility of cutting the five-year Loan Prime Rate, Wu added.