MNI China Daily Summary: Tuesday, August 08

BRIEF: China's exports decreased by 14.5% y/y in July, dipping further from June's 12.4% y/y drop, and weaker than the consensus of 12.9% y/y fall, led by shrinking external demand together with the high base effect, data from customs showed.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY6 billion via 7-day reverse repos with the rate unchanged at 1.90%. The operation has led to a net drain of CNY2 billion after offsetting the maturity of CNY8 billion reverse repo today, according to Wind Information. The operation aims to keep banking system 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 1.7464% from 1.7130%, Wind Information showed. The overnight repo average decreased to 1.3650% from 1.5190%.

YUAN: The currency weakened to 7.2133 against the dollar from 7.1920. The PBOC set the dollar-yuan central parity rate higher at 7.1565, compared with 7.1380 set on Monday. The fixing was estimated at 7.1859 by BBG survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.6850%, down from Monday's close of 2.6875%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.25% to 3,260.62, while the CSI300 fell 0.26% to 3,979.73. The Hang Seng Index was down 1.81% to 19,184.17.

FROM THE PRESS: The yuan will take time to strengthen as markets wait for new stimulus policies to take effect and external factors remain uncertain, according to Huang Wentao, chief economist at China Securities Construction. In an interview with 21st Century Herald, Huang said although the government will not implement strong stimulus in H2, the yuan will strengthen later in the year as the domestic economy stabilises with inventories, incomes and exports recovering naturally. In the short term, CNY will fluctuate around CNY7.1-7.2 against the U.S. dollar, he added.

China can increase its total factor productivity (TFP) growth rate to 2.5% and above to better meet its 2035 target to double its GDP from 2020, according to Professor Liu Qiao, dean at Guanghua School of Management, Peking University. Liu said policymakers can increase productivity via industrial transformation and new infrastructure which focuses on 5G/6G, big data and artificial intelligence among others. Further TFP gains will come from strengthening weak areas of manufacturing supply chains and building new major industries such as aerospace and transportation power. (Source: Yicai)

Country Garden, once China’s biggest developer by sales, has denied claims that a working group led by the vice mayor of Foshan City have been stationed at the company after its share prices slumped by 7.69% on Monday with several domestic bonds leading the decline. Rumors that the developer may default on its debts have circulated for some time, as multiple debts due in the short term have pressured the company’s cash flow. The firm has the ability to cover short-term debt maturity barring accidents, as it has CNY147.55 billion cash on its balance sheet, of which CNY128.28 billion is unrestricted cash as of end-2022, while the corresponding short-term debt due within one year is about CNY93.71 billion. (Source: Yicai)