MNI China Daily Summary: Wednesday, Aug 28

MNI (MNI (BEIJING)) - POLICY: Local interbank trader's see China's economic performance at a 12-month low in August, as weak July economic data pushed the People's Bank of China to maintain ample liquidity to support growth, the MNI China Liquidity survey showed.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY277.3 billion via 7-day reverse repos, with the rate unchanged at 1.70%. The operation led to a net injection of CNY19.3 billion after offsetting maturities of CNY258 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7808% from 1.8735%, Wind Information showed. The overnight repo average decreased to 1.5218% from 1.6575%.

YUAN: The currency strengthened to 7.1260 against the dollar from 7.1296 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1216, compared with 7.1249 set on Tuesday. 

BONDS: The yield on 10-year China Government Bonds was last at 2.1100%, down from 2.1300% at Tuesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.40% to 2,837.43 while the CSI300 index fell 0.57% to 3,286.50. The Hang Seng Index decreased 1.02% to 17,692.45.

FROM THE PRESS: Overseas institutions increased overall yuan bond holdings to CNY4.5 trillion in July, up CNY1.26 trillion over the past 11 consecutive months of growth, Securities Daily reported. Interest spread trading and increased demand for yuan assets as a safe-haven choice had supported the growth, the news outlet reported, citing Yu Lifeng, an analyst at Golden Credit Rating. Yu noted revenue from holding a one-year interbank deposit certificate and simultaneously signing a one-year forward contract was 6.04% by end-July, higher than U.S. dollars' overseas borrowing costs, Yu added.

China’s industrial profits grew by 4.1% y/y in July supported by low base effects, according to Wu Chaoming, deputy director of the Caixin Research Institute. Industrial profits from January to July went up 3.6%, showing macro policy effects have emerged and market demand is gradually recovering, according to Zhou Maohua, macro researcher at Everbright Bank. However, the industrial sector faces challenges from weak demand, an uneven recovery, fluctuations in international energy commodity prices and overseas demand uncertainty, Zhou added.

Local governments facing increasing fiscal pressure will struggle to balance resolving debt risks with ensuring basic services and operations, Caixin reported. A recent fiscal report by Ar Horqin Banner, Chifeng City, Inner Mongolia Autonomous Region said fiscal resources can barely guarantee operational expenditures such as salary payments. Ar Horqin was facing serious credit default risks with little funding to resolve hidden debts, the report added. The general public budget revenue of Ar Horqin was CNY247 million in H1, down 9.8% y/y, Caixin reported.