MNI China Daily Summary: Thursday, September 5

MNI (BEIJING) - EXCLUSIVE: China’s electric vehicle sales will account for above 50% market share going forwards following July’s purchases surpassing internal combustion engine (ICE) cars for the first time on record, a leading Chinese car industry expert told MNI.

POLICY: The People’s Bank of China (PBOC) will increase countercyclical adjustments with room to lower the reserve requirement ratio, though further interest-rate cuts will prove difficult, Zou Lan, head of the Monetary Policy Department at the PBOC, told reporters.

POLICY: China needs to promote the use of the yuan among Regional Comprehensive Economic Partnership countries as economic and trade cooperation with Southeast Asian nations deepens, said Huang Qifan, former major of Chongqing City and a high-ranking policy advisor, at the 2024 Bund Summit in Shanghai.

POLICY: Hong Kong will incorporate more risk management tools into the mainland-HK Connect programme to address investor needs and provide more yuan-denominated products to facilitate its international use, said HK Financial Secretary Paul Chan at the 2024 Bund Summit, co-hosted by CF40, a prominent think tank.

LIQUIDITY: The PBOC conducted CNY63.3 billion via 7-day reverse repos, with the rate unchanged at 1.70%. The operation led to a net drain of CNY87.6 billion after offsetting maturities of CNY150.9 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.7108% from 1.7095% on Wednesday, Wind Information showed. The overnight repo average increased to 1.5898% from the previous 1.5437%.

YUAN: The currency strengthened to 7.0995 against the dollar, from 7.1135 at Wednesday's close. The PBOC set the dollar-yuan central parity rate lower at 7.0989, compared with 7.1148 set on Wednesday. The fixing was estimated at 7.1023 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.1215%, down from Wednesday's close of 2.1300%, according to Wind Information.

STOCKS: The Shanghai Composite Index gained 0.14% to 2,788.31, while the CSI300 index edged up 0.17% to 3,257.76. The Hang Seng Index was down 0.07% to 17,444.30.

FROM THE PRESS: Outstanding mortgages in six major state-owned banks reached CNY25.5 trillion by end-Q2, a net decline of CNY325.5 billion since the start of the year, as homeowners continued with early repayments, Shanghai Securities News reported, citing banks’ semi-annual reports. Banks will require policy support to lower existing mortgage rates given pressure on net interest margin, the newspaper said, citing Chen Wenjing, market research director at China Index Academy.

China’s CPI has likely accelerated in August due to bad weather and stable domestic demand, experts interviewed by the Securities Daily said. Minsheng Bank Chief Economist Wen Bin expects CPI to reach 0.7% y/y in August, as pork prices rose from mid-May due to farmers’ second fattening their herds and rainy weather disrupting pig transportation. In terms of PPI, Wen expects a drop of 0.5% m/m and 1.5% y/y. However, Huatai Securities noted industrial self discipline, higher fiscal intensity and Federal Reserve interest-rate cuts may support PPI in H2.

China’s steel industry should abandon its traditional model based on scale production as the sector no longer exhibits cyclical increases in demand, according to Luo Tiejun, vice president of the Iron and Steel Association. Speaking at an industry meeting in Guangdong, Luo said firms need to transform into highly efficient enterprises based on technology and explore new models of production using self-discipline. Market participants agreed demand has fallen significantly since the start of the year leading to price declines and losses.