MNI China Daily Summary: Wednesday, August 30

EXCLUSIVE: Chinese authorities should prioritise legal investor protections and increase information access to retail investors among other reforms to improve the A-share market and stabalise economic growth, advisors and analysts told MNI, following recent moves to stimulate China's equity market.

EXCLUSIVE: Recent government measures that address intellectual property and market access concerns may prove ineffective at boosting foreign direct investment (FDI), as international corporations operating in Mainland China grow increasingly worried over the country's economy and lack of policy response, international business leaders in China have told MNI.

LIQUIDITY: China’s interbank market liquidity tightened modestly in August but remained ample as the People’s Bank of China (PBOC) ensured funds were available to support the economic recovery. However, traders' outlook on the economy fell to the lowest level since May 2022, as authorities have struggled to inspire market confidence with recent policy announcements, the latest MNI Liquidity Conditions Index showed. The MNI China Liquidity Condition Index climbed to 44.9 in August from July’s 35.9, with 23.1% of traders reporting tighter conditions, up 5.1 percentage points on last month.

LIQUIDITY: The PBOC conducted CNY382 billion via 7-day reverse repos, with the rates unchanged at 1.80%. The operation has led to a net injection of CNY81 billion after offsetting the maturity of CNY301 billion reverse repo today, according to Wind Information. The operation aims to keep banking system liquidity stable at the end of the month, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.2540% from the close of 2.1819% on Tuesday, Wind Information showed. The overnight repo average fell to 1.9010% from the previous 1.9846%.

YUAN: The currency closed at 7.2925 against the dollar, flat from the close of Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1816, compared with 7.1851 set on Tuesday. The fixing was estimated at 7.2741 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.6400%, down from Tuesday's close of 2.6425%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.04% to 3,137.14, while the CSI300 index decreased 0.04% to 3,788.51. The Hang Seng Index edged down 0.01% to 18,482.86.

FROM THE PRESS: China and the U.S. should strengthen cooperation, reduce confrontation and jointly promote world economic recovery, according to Premier Li Qiang. At a meeting with U.S. Secretary of Commerce Gina Raimondo, Li said the two countries should embrace win-win cooperation and resist politicising economic issues to avoid damaging the global economy. Raimondo said the U.S. wanted to maintain normal economic and trade relations with China and has no intention of containing the country or decoupling. (Source: China Ministry of Foreign Affairs Website)

The yuan may strengthen at the end of the year when the U.S. Federal Reserve is expected to end its rate-hike cycle and domestic company Q4 forex settlements add their support alongside effective implementation of pro-growth policies. The central bank has taken a firm stance against the yuan overshooting, mainly by setting a higher-than-expected central parity rate, as well as the issuance of offshore central bank bills. The timely use of countercyclical factor in central parity rate, forex reserve requirement ratio and window guidance will also help stabilise market expectations, said Zhao Wei, chief economist at Sinolink Securities. (Source: China Securities Journal)

Major state-owned banks may move to substantially promote the reduction of existing residential mortgage rates this week, Securities Daily reported citing anonymous sources. So far, Agricultural Bank of China, China Construction Bank, China CITIC Bank and China Merchants Bank have revealed they are preparing for the adjustment. Every 10bp cut in outstanding mortgage rates may lead to a reduction of 0.9-1bp in banks' net interest margin, according to estimates by major research institutes.