MNI China Daily Summary: Wednesday, August 24

LIQUIDITY: The People's Bank of China (PBOC) injected CNY2 billion via 7-day reverse repos with the rate unchanged at 2.0%. This keeps the liquidity unchanged after offsetting the maturity of CNY2 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) fell to 1.3747 from the close of 1.3864% on Tuesday, Wind Information showed. The overnight repo average increased to 1.1218% from the previous 1.1073%.

YUAN: The currency weakened to 6.8654 against the dollar from 6.8510 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.8388, compared with 6.8523 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6350%, flat from Tuesday's close, according to Wind Information.

STOCKS: The Shanghai Composite Index tumbled 1.86% at 3,215.20, while the CSI300 index lost 1.89% to 4,082.42. Hang Seng Index fell 1.20% to 19,268.74.

FROM THE PRESS: It is widely expected that there will be some depreciation pressure on the yuan in Q4, given the upward trend of the U.S. dollar index, with most foreign banks’ year-end forecasts for the yuan sitting between 6.70 and 6.95 against the dollar, Yicai.com reported. This round of yuan depreciation will be milder than what was seen in the second quarter as the Chinese economy is still likely to recover in H2, with fiscal stimulus and monetary easing kicking in, the newspaper wrote, citing HSBC. Some analysts believe any yuan movement will be tied to the degree of resilience observed in Chinese exports through the remainder of the year, the newspaper highlighted.

Moderate depreciation for the yuan is conducive to maintaining export competitiveness against the backdrop of a global economic downturn, and is a positive when it comes to stabilizing China’s growth, the Securities Times wrote. The yuan has shown resilience when compared with the recent sharp decline in the euro and Korean won, as the U.S. dollar index reached a 20-year high. The newspaper played down any impetus from the recent movement in interest rate differentials, suggesting such moves have a limited impact on the yuan, as no obvious foreign capital outflows were triggered after the PBoC’s surprise rate cut in mid-August.

The recent power rationing observed in several provinces in Southwest China, owing to the well-documented heatwaves, reveals an urgency to promote the market-based reform of the country’s power system, said Yicai.com in an editorial. Provinces such as Sichuan are facing peak load demand, while high temperatures resulting in 40% lower rainfall levels have more than halved hydropower generation capacity, the newspaper said. China should build a power grid that conforms to the future power structure and adapts to the volatility of new energy sources such as wind and solar, the newspaper said. Furthermore, the country aims to add more than six times the level of current new energy capacity to achieve carbon neutrality, the newspaper noted.