MNI China Daily Summary: Wednesday, September 1

DATA: Caixin China's manufacturing PMI for August declined 1.1 percentage points on month to 49.2, falling into a contraction zone below the breakeven 50 for the first time since May 2020 due to the sporadic resurgence of Covid-19 cases and floods, the financial publisher said on Wednesday.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.2%. The operation resulted in a net drain of CNY40 billion given the maturity of CNY50 billion reverse repos, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 2.0753% from the close of 2.3826% on Tuesday, Wind Information showed. The overnight repo average fell to 2.1112% from the previous 2.2401%.

YUAN: The currency weakened to 6.4652 against the dollar from 6.4645 on Tuesday. The PBOC set the dollar-yuan central parity rate slightly higher at 6.4680, compared with the 6.4679 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8200%, down from Tuesday's close of 2.8425%, according to Wind Information.

STOCKS: The Shanghai Composite Index rose 0.65% at 3,567.10, while the CSI300 index rallied 1.33% to 4,869.46. Hang Seng Index gained 0.58% to 26,028.29.

FROM THE PRESS: China's PMI is expected to remain in the expansionary zone above the breakeven 50 through the rest of this year, as demand will increase with Sept and Oct holidays approaching now that recent outbreaks have been controlled, the China Securities Journal reported citing analysts. PMI further slowed to 50.1 in August, the traditional off-season for manufacturing, mainly due to the sporadic rebound of the pandemic, the newspaper said citing analyst Wen Tao with China Logistics Information Center. The deceleration of PMI indicates increased downward pressure and China should increase the lead of government investment as soon as possible to expand domestic demand, the newspaper said citing Zhang Liqun, macro researcher at the Development Research Center for the State Council.

The PBOC may further boost liquidity including cutting banks' required reserve ratios to meet significant upcoming maturing MLFs and various demands of the economy, including the sales of local government special bonds, the Securities Times said citing analysts including Chen Qi of Chuancai Securities and Ming Ming of Citic Securities. On Tuesday, the central bank conducted the fourth daily reverse repo purchase valued at CNY50 billion, a larger sum and a signal that it wants to stabilize the market's expectations, the newspaper said. Liquidity showed marginal tightness at the end of August with DR007 rising to 2.2% from 2.0%, due to the maturing MLFs and due tax payments, the newspaper said. The central bank's large injections have kept market rates stable, said the newspaper.

The collective non-performing loan ratio of Chinese commercial banks decreased 0.05 percentage point to 1.76% at the end of Q2 from Q1, while net profits in the first half totaled CNY1.1 trillion, a rise of 11.1% y/y, the China Securities Journal reported citing a report by China Banking Association. In the second half, banks will need to step up efforts disposing of non-performing assets as the industry becomes more competitive and regional differences increase, demanding higher competencies controlling risks and managing businesses, the report said. Banks face continued challenges in managing liquidity and market risks given the pandemic uncertainties, interest rate reform, a more volatile yuan and capital flow, the report said.