MNI China Daily Summary: Thursday, July 14

POLICY: All concerned parties should promote talks to help ease the Ukraine crisis, said Shu Jueting, spokeswoman of the Ministry of Commerce at a Thursday briefing when asked to comment on the proposed price cap on Russian oil.

POLICY: The Chinese economy likely expanded less than 1% in Q2, slower than expected as the initial economic rebound starting in June may not be robust enough to offset the damage of Covid lockdowns during April and May, according to analysts. China will unveil its Q2 GDP and a set of June economic indicators on Friday, which will give clues on how fast the economy emerged from the bottom as restrictions were eased. Economists polled by Bloomberg predict GDP accelerated 1.2% y/y in Q2, down from Q1’s 4.8%. But some analysts from domestic research houses are looking at a slower pace around 0.5-0.8%.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY3 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) decreased to 1.5350% from 1.5464% on Wednesday, Wind Information showed. The overnight repo average fell to 1.1695% from the previous 1.2129%.

YUAN: The currency weakened to 6.7480 against the dollar from 6.7229 on Wednesday. The PBOC set the dollar-yuan central parity rate lower at 6.7265, compared with 6.7282 set on Wednesday.

BONDS: The yield on 10-year China Government Bond was last at 2.7875%, down from the previous close of 2.8050%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.08% to 3,281.74, while the CSI300 index edged up 0.01% to 4,322.07. Hang Seng Index fell 0.22% to 20,751.21.

FROM THE PRESS: China will continue to prioritise promoting employment to support a faster economic recovery, and shore up the consumption of green and intelligent home appliances, CCTV News reported citing the State Council executive meeting chaired by Premier Li Keqiang late on Wednesday. Local governments and departments should keep implementing rescue policies to help enterprises including deferring their payments of social securities, as well as support entrepreneurship by providing up to CNY200,000 entrepreneurial guaranteed loans to eligible startups with interest discounted by the government, the meeting said. China will promote the replacement of old appliances and boost the sales in countryside across the country, the meeting said.

The yuan is likely to maintain a narrow range of two-way fluctuations against the U.S. dollar, with no basis for a sharp depreciation, supported by a high trade surplus and limited upward space for the dollar index, wrote Wen Bin, chief economist of China Minsheng Bank in an article run by 21st Century Business Herald. Though China-U.S. interest rates have inverted, the range has narrowed significantly since mid-June, said Wen. Global investors are still keen on domestic financial markets with the capital inflows under Shanghai-Hong Kong Stock Connect increasing, said Wen.

China’s foreign exchange market has shown greater resilience and foundation to resist external shocks, with generally stable FX reserves and increased cross-border transactions, said the central bank-run newspaper Financial News citing analysts. A flexible yuan is the key to a wider opening of financial markets as it helps release pressure in a timely manner, the newspaper said citing Guan Tao, a former FX official. The yuan is more robust than other non-U.S. currencies, depreciating only 5.4% as of July 12 this year against the backdrop of a sharp 13% rise in the dollar index, significantly lower than the depreciations of the euro, yen and pound, which are 11.9%, 16.1% and 12.6% weaker, respectively, the newspaper said.