MNI China Daily Summary: Thursday, July 7

POLICY: The People’s Bank of China (PBOC) is signalling curbs on rising leverage in the wholesale money market by draining excess liquidity as social financing improves on fiscal stimulus and credit expansion efforts, market analysts said. The central bank has reduced the amount of its daily open market operations at an unexpected pace since this Monday by injecting only CNY3billion per day via reverse repo agreements.

POLICY: Both China’s and the U.S.’s trade and economic teams have agreed to maintain close communications following a video call this week between Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen, said Shu Jueting, spokeswoman of the Ministry of Commerce at a briefing. Shu reiterated that the removal of all additional tariffs imposed on Chinese goods would be beneficial to both sides.

LIQUIDITY: The PPBOC injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation has led to a net drain of CNY77 billion after offsetting the maturity of CNY80 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) rose to 1.5643% from 1.5577% on Wednesday, Wind Information showed. The overnight repo average increased to 1.2126% from the previous 1.1962%.

YUAN: The currency weakened to 6.7073 against the dollar from 6.7032 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.7143, compared with 6.7246 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.8375%, up from the previous close of 2.8350%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.27% to 3,364.40, while the CSI300 index gained 0.44% to 4,443.47. Hang Seng Index rose 0.26% to 21,643.58.

FROM THE PRESS: The yuan is expected to remain at a reasonable level against the U.S. dollar, supported by the continuous economic recovery in China while the U.S. economy is facing increased pressure, the China Securities Journal reported citing analysts. The dollar index could rise further above 110, as the euro and the pound could further weaken on growth pressure and debt risks in the European economic outlook amid tight energy supplies. This could pressurize the yuan slightly, but any depreciation would be limited and smaller than that in other non-dollar currencies, the newspaper said citing analysts. The dollar index rose above 107 to a new high in nearly 20 years on Wednesday, while the onshore yuan fell only 22 basic points against the dollar, the newspaper added.

The Chinese economy likely expanded about 0.9% in Q2, and should set a 4.3% pace this year in a slow recovery from the disruptions caused by Covid-19 outbreaks, Yicai.com reported citing a poll of economists. Infrastructure investment, which could reach at least 6-8% in 2022, will be the main driver, followed by resilient exports and a marginal consumption rebound, the newspaper said citing Cheng Shi, chief economist of ICBC International. But unemployment and weak property investment would still slow down the recovery process, Yicai said citing Zhou Xue, Asia Economist at Mizuho Securities. Economists also raised their expectations for the yuan against the U.S. dollar to 6.68 by the end of July, compared with the 6.7114 reading on June 30, Yicai added.

More Chinese cities are relaxing home purchase restrictions by making it easier for people without local household registration to enter their local property markets, in a bid to boost home sales, the 21st Century Business Herald reported. Some major cities including Dongguan, Wuhan, Jinan and Dalian have allowed non-local residents to purchase homes in non-restricted areas, the newspaper said. To further stimulate the market, mortgage interest rates and loan policy could be further eased, as well as issuing home purchase or deed tax subsidies, the newspaper said citing analysts.