MNI China Daily Summary: Wednesday, July 24

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY66.1 billion via 7-day reverse repo, with the rate kept at 1.70%. The operation led to a net drain of CNY203.9 billion after offsetting CNY270 billion in maturities, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7591% from 1.7669%, Wind Information showed. The overnight repo average increased to 1.7517% from 1.7507%.

YUAN: The currency weakened to 7.2760 to the dollar from 7.2741 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.1358, compared with 7.1334 on Tuesday.

BONDS: The yield on 10-year China Government Bonds was last at 2.1400%, down from Tuesday's close of 2.1350, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 0.46% to 2,901.95, while the CSI300 index fell 0.63% to 3,418.17. The Hang Seng Index declined 0.91% at 17,311.05.

FROM THE PRESS: China may issue additional government bonds to deliver fiscal spending targets this year, due to declining tax and local land sales revenue, China Securities Journal reported, citing Zhang Bin, deputy director at the Chinese Academy of Social Sciences. Authorities can expand fiscal funds by issuing more special refinancing bonds, increasing pledged supplementary loans to leverage key construction projects, and revitalising state-owned assets, said Wen Bin, chief economist at Minsheng Bank.

The yuan will likely fluctuate between 7.1-7.3 against the U.S. dollar in H2, as China’s good economic fundamentals and rich exchange-rate management tools ensure stability, Securities Daily reported, citing Wen Bin, chief economist at Minsheng Bank. China’s large trade surplus and FX reserves will provide support, while U.S. Federal Reserve cuts expected in September will weaken external constraints, said Wang Youxin, senior researcher at the Bank of China Research Institute.

China’s retail sales growth will pick up in H2 as government policy to replace consumer goods takes effect, according to a Chinese Academy of Social Sciences report. Manufacturing investment will remain strong, but local government financial tightness will drag on infrastructure investment. Authorities should support real estate by issuing treasury bonds for local governments to purchase housing and allow first-tier cities to cancel purchase and loan restrictions. Provincial governments can improve developer financing by directly investing in top firms, the report added. (Source: 21st Century Herald)