MNI China Daily Summary: Wednesday, July 13

POLICY: The Chinese yuan could be buoyed against the dollar in the fourth quarter by economic recovery at home just as the U.S. potentially heads into recession, allowing it to strengthen against other emerging-market currencies, market analysts said.

POLICY: The People’s Bank of China (PBOC) will guide commercial banks to further increase credit support and to lower borrowing costs of the real economy as the recovery still faces uncertainties in the second half of the year, officials of the central bank told reporters at a briefing. The PBOC will facilitate lenders to reduce the real loan rates via lowering their deposit costs by liberalising the deposit interest rate system.

DATA: China's exports jumped by 17.9% in June from a year ago, beating the previous month and a market forecast of 12.9%, on the accelerated resumption of production in South China cities as well as a weaker yuan exchange rate, China Customs data showed. Imports, led by energy purchases, rose 1.0% in June and missed the consensus of a 4.0% gain expected.

LIQUIDITY: The PBOC injected CNY3 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY3 billion repos today, 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) rose to 1.5464 from the close of 1.5399% on Tuesday, Wind Information showed. The overnight repo average increased to 1.2129% from the previous 1.2063%.

YUAN: The currency strengthened to 6.7229 against the dollar from 6.7345 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.7282 on Wednesday, compared with 6.7287 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8055%, down from Tuesday's close of 2.8075%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.09% at 3,284.29, while the CSI300 index gained 0.18% to 4,321.46. Hang Seng Index edged down 0.22% to 20,797.95.

FROM THE PRESS: Chinese developers have turned to domestic markets to raise funds but default risks are still growing as debt maturities peak in July and August, the Securities Daily reported on Wednesday. The financing amount of developers slumped by 56.5% year-on-year in the first half as they have been downgraded due to credit risks, it said. Debt issuance in offshore markets is also shrinking with no issuance in both February and May. As restrictions on the fund-raising in the sector relax and market confidence is recovering, the financing environment is expected to improve in the second half. But for those heavily-indebted developers, the default risk remains big, the report warned.

China regulators should monitor the use of funds raised through local government special bonds which have been issued at an unprecedented rapid pace this year to boost the economy, China Business Network reported. Some funds have not been used timely and effectively due to lack of projects or have been invested in unqualified projects, increasing local governments debt burdens and risks, it reported. Since 2015, outstanding local government special bonds totalled CNY18.9 trillion. It is expected China would front load part of the quota for 2023 local government special debts later this year to boost the economy, experts said.

China policy makers will implement supportive measures and make efforts to ensure the economy grows at a good and healthy level, the People’s Daily in its commentary on Wednesday. Fiscal policy needs to be more positive in term of cutting taxes and fees and expanding domestic demand via issuing local government special bonds to boost infrastructure. And monetary policy needs to remain flexible and work to stabilise market sentiment, it said. The authorities needs to prepare additional tools for the new downward pressure to maintain economic growth, it noted.