MNI China Daily Summary: Tuesday, July 16

EXCLUSIVE: China looks set to increase the share of taxes raised by local governments and reduce their responsibilities for spending, advisors told MNI, with some pointing to consumption tax as a focus of fiscal and tax reforms likely to be announced at the Communist Party’s Third Plenum this week.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY676 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY674 billion after offsetting the CNY2 billion maturity today, according to Wind Information.

RATES: China's seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.9011% from 1.8334%, Wind Information showed. The overnight repo average rose to 1.9097% from 1.7940%.

YUAN: The currency weakened to 7.2662 from 7.2627 at Monday's close. The PBOC set the dollar-yuan central parity rate higher at 7.1328 on Tuesday, compared with 7.1313 set on Monday. The fixing was estimated at 7.2691 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.2550%, up from Monday's close of 2.2480%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index gained 0.08% to 2,976.30 while the CSI300 index edged up 0.63% to 3,498.28. The Hang Seng Index fell 1.60% to 17,727.98.

FROM THE PRESS: The PBOC is likely to reform the quotation of Loan Prime Rates by changing its anchor policy rate to 7-day reverse repo rate from the current 1-year medium-term lending facility rate, 21st Century Business Herald reported citing analysts. The MLF rate often deviates from the trend of market interest rates for the same period, and the decoupling between MLF rate and LPR is also gradually emerging, said Wen Bin, chief economist of China Minsheng Bank. This is in line with a recent speech made by PBOC Governor Pan Gongsheng that indicated the central bank will downplay MLF and focus on the 7-day reverse repo tool as the main policy rate, said Ming Ming, chief economist at CITIC Securities.

Authorities should address Q2’s economic slowdown by implementing preferential tax policies, approving CNY 1 trillion of additional refinancing bonds, increasing PBOC Pledged Supplementary Lending (PSL) funds for construction projects, and retaining more SOE profits, according to chief economists interviewed by news outlet Yicai. In H1, residents saw per capita disposable income growth slow by 0.8 and 0.9 pp in nominal and real terms respectively, meaning officials need to stabilise employment and raise incomes to support consumption, said Zhang Yi, director of the Household Survey Department of the National Bureau of Statistics.

China’s property market indicators further declined in June as the market continued to adjust and transform, a National Bureau of Statistics spokesperson said. June data showed sales prices of newly built housing in first-tier cities fell by 0.5% m/m, 0.2 pp narrower than previous, with Beijing, Guangzhou and Shenzhen falling 0.6%, 1.2% and 0.7% respectively, offset by Shanghai's 0.4% increase. Chen Wenjing, director of market research at China Index Academy, expects authorities to further promote the project financing "white list" policy, while implementing tax refunds for real-estate companies to increase liquidity. (Source: Yicai)