MNI China Daily Summary: Tuesday, August 2

POLICY: The U.S. should take full responsibility for provocative actions that escalate tensions across the Taiwan Strait, Hua Chunying, spokeswoman of the Ministry of Foreign Affairs, said at a briefing on Tuesday against a backdrop of U.S. House Speaker Nancy Pelosi's planned visit to Taiwan.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.10%. The operation has led to a net drain of CNY3 billion after offsetting the maturity of CNY5 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 1.3862 from the close of 1.4305% on Monday, Wind Information showed. The overnight repo average fell to 1.0667% from the previous 1.1706%.

YUAN: The currency weakened to 6.7580 against the dollar from Monday's close of 6.7549. The PBOC set the dollar-yuan central parity rate lower at 6.7462 on Tuesday, compared with 6.7467 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 2.7275%, down from Monday's close of 2.7295%, according to Wind Information.

STOCKS: The Shanghai Composite Index tumbled 2.26% to 3,186.27, while the CSI300 index fell 1.95% to 4,107.02. The Hong Kong's Hang Seng Index lost 2.36% to 19,689.21.

FROM THE PRESS: Overseas central banks and sovereign wealth funds are expected to increase yuan assets in foreign exchange reserves correspondingly after the yuan’s weighting in the Special Drawing Rights currency basket was officially lifted to 12.28% by IMF on Monday, which will help stabilise yuan under the U.S. rate hike cycle, the 21st Century Business Herald reported citing an unnamed Wall Street asset manager. This will effectively hedge against the negative impact of overseas arbitrage capital's reduction of yuan bonds, making it more difficult to speculate on the concept of capital outflow and short-selling yuan, the newspaper said citing a FX trader in Hong Kong.

The PBOC will maintain stable and moderate growth of money and credit, and use multiple monetary tools to keep liquidity reasonably ample, according to a statement on the PBOC website following its work meeting for the second half of 2022. The central bank will keep financing for the real estate sector stable via channels including loans and bonds, prevent and defuse risks of small and medium-sized banks, as well as urge Internet platforms to fully complete rectification, the statement said. It will also keep the yuan basically stable at a balanced level, according to the statement.

Chinese People's Liberation Army (PLA) will not slacken in training and preparation for war, as the provocation by the U.S. House Speaker Nancy Pelosi of a possible visit to Taiwan proves again that China needs to build a strong army more than ever in history, the Party tabloid Global Times said in an editorial. The U.S.' increasingly blatant besiege and containment against China is rapidly deteriorating China's peripheral environment. China cherishes peace but will not trade its core interests and tolerate bullying, and will certainly counterattack if under attack, the newspaper said.