MNI China Daily Summary: Thursday, July 25

POLICY: The People’s Bank of China unexpectedly cut the one-year medium-term lending facility rate by 20 basis points to 2.3%, its first cut since August 2023, and injected CNY200 billion via the tool into the interbank market, according to a statement on the Bank’s website.

POLICY: China will allocate CNY300 billion of ultra-long special treasury bonds towards supporting large-scale equipment renewals and consumer good replacement projects, Zhao Chenxin, Deputy Director at the National Development and Reform Commission said.

LIQUIDITY: The PBOC conducted CNY235.1 billion via 7-day reverse repo, with rate unchanged at 1.70%. The central bank also conducted a second 1-year MLF within the month of CNY200 billion, with rate cut to 2.3% from the previous 2.5%. The operation has led to a net injection of CNY186.1 billion after offsetting the CNY49 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.9168% from 1.7591% on Wednesday, Wind Information showed. The overnight repo average increased to 1.7693% from the previous 1.7517%.

YUAN: The currency strengthened to 7.2203 against the dollar, from 7.2760 at Wednesday's close. The PBOC set the dollar-yuan central parity rate lower at 7.1321, compared with 7.1358 set on Wednesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.1250%, down from Wednesday's close of 2.1400%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.52% to 2,886.74, while the CSI300 index decreased 0.55% to 3,399.27. The Hang Seng Index was down 1.77% to 17,004.97.

FROM THE PRESS: China must reduce policy interventions and optimize the allocation of resources to boost domestic demand and achieve a more balanced foreign trade relationship, according to Zhang Bin, deputy director at the Institute of World Economics and Politics. China’s high trade surplus comes at the expense of domestic consumption which exacerbates trade disputes and sanctions, Zhang added. China’s real rate of return on overseas capital accumulated from its trade surplus was lower than that on domestic assets, meaning China’s resource allocation was not optimal.

China’s macro leverage ratio, a measure of debt to nominal GDP, will increase passively in H2 if nominal economic growth remains lower than debt growth, according to a National Institute of Finance and Development (NIFD) report. The macro leverage ratio rose 7.5 percentage points in H1, the report said. Liu Lei, secretary-general of the National Balance Sheet Research Center said property support to stabilise real estate investment may ease increases in macro leverage. However, in the long term China requires growth in domestic demand and inflation to promote a rebound in nominal GDP growth, according to Mingming, chief economist of CITIC Securities.

China’s SOEs saw profits reach CNY1.4 trillion between January and June this year, up 1.9% y/y, according to information released at a State-owned Assets Supervision and Administration Commission (SASAC) seminar. Looking ahead, SOEs will properly manage the accounts receivable of SME firms and promote the sustained recovery of the economy, according to Zhang Yuzhuo, director at the SASAC. SOE leadership was focused on developing new quality productivity and promoting technological and industrial innovation, Zhang added.