MNI China Daily Summary: Wednesday, July 31

DATA: China's Manufacturing Purchasing Managers Index shrank for a third straight month in July, registering 49.4, down from June's 49.5 reading, as off-season, weak demand, and extreme weather weighed, data from the National Bureau of Statistics showed.

LIQUIDITY: Aimed at reversing an economic slowdown in Q2, the People’s Bank of China unexpectedly cut policy rates in July, a move coming as money market traders across China lowered their outlook on the economy to a 12 month low and viewed the central bank policy stance as the loosest since January 2019, the MNI China Liquidity survey showed. The MNI China Economy Condition Index fell to 47.7 in July, the third consecutive monthly fall from May’s 65.5, the highest reading of 2024 so far.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY251.67 billion via 7-day reverse repo, with rate unchanged at 1.70%. The operation has led to a net injection of CNY185.57 billion after offsetting the CNY66.1 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.7998% from the close of 1.8336% on Tuesday, Wind Information showed. The overnight repo average rose to 1.8012% from 1.6427%.

YUAN: The currency strengthened to 7.2261 against the dollar from Tuesday's close of 7.2472. The PBOC set the dollar-yuan central parity rate lower at 7.1346, compared with 7.1364 set on Tuesday. The fixing was estimated at 7.2419 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.1400%, down from Tuesday's close of 2.1430%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index rose 2.06% to 2,938.75, while the CSI300 index increased 2.16% to 3,442.08. The Hang Seng Index gained 2.01% to 17,344.60.

FROM THE PRESS: China will maintain high export growth in H2 given low base effects, positive overseas inventory cycles, manufacturing demand from BRI countries and advanced purchasing ahead of anticipated U.S. tariffs, according to Mingming, chief economist at CITIC Securities. Lv Daliang, spokesperson at China’s customs ministry, said foreign trade will be stable in the long run despite rising protectionism, interference in global supply chains and the Red Sea crisis. (Source: Yicai)

China needs to improve income distribution towards low and middle-income groups by improving the tax system, increasing transfer payments and accelerating market-oriented rural land use rights, according to Luo Zhiheng, chief economist at Guangdong Securities. Authorities needed such reforms to ensure any consumption stimulus was sustainable, following the recent politburo meeting's focus on services consumption, Luo added. Additionally, officials can relax market access in sectors such as tourism, culture, medical care and accelerate household registration system reforms to support migrant workers.

China’s appointment of Li Ming to vice chairman at the China Securities Regulatory Commission signals authorities’ focus on market stability, strict supervision and deeper reforms, cls.cn reported. Industry insiders noted Li was previously a reformer when managing the National Equities Exchange and Quotations, making changes to trading rules and information disclosure. Li brings rich experience in strengthening market supervision and law enforcement, cls.cn added.