MNI China Daily Summary: Wednesday, August 31

DATA: China's Purchasing Managers' Index (PMI) rebounded moderately to 49.4 in August from July's 49.0, although remaining in contractionary territory below 50 for the second consecutive month, as sporadic Covid-19 outbreaks and heatwaves across parts of the country weighted on manufacturing activities, data from the National Bureau of Statistics showed.

LIQUIDITY: Liquidity conditions across China’s interbank market tightened modestly in August, as the People’s Bank of China (PBOC) looked to balance boosting the economy and avoiding excess liquidity, the latest MNI Liquidity Conditions Index shows. The Liquidity Condition Index rose to 53.1 in August from 34.4 previously, with 28.1% of the participants reporting a marginal tightening in liquidity condition.

LIQUIDITY: The 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) rose to 1.7170 from the close of 1.6584% on Tuesday, Wind Information showed. The overnight repo average increased to 1.4322% from the previous 1.1159%.

YUAN: The currency strengthened to 6.8905 against the dollar from 6.8980 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.8906, compared with 6.8802 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6400%, up from Tuesday's close of 2.6325%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.78% at 3,202.14, while the CSI300 index edged up 0.07% to 4,078.84. Hang Seng Index gained 0.03% to 19,954.39.

FROM THE PRESS: The yuan will continue to be subjected to two-way fluctuations while remaining basically stable at a balanced level, as the implementation of China’s pro-growth policies will consolidate the economic recovery and strengthen fundamental support for the yuan, the Economic Information Daily wrote. Capital inflows from robust foreign trade and investment will help maintain a basic balance between supply and demand in the FX market, the newspaper said. The CFETS RMB Index, a key currency index basket managed by the PBOC, is still above 100, meaning the yuan has shown strong resilience during the latest U.S. dollar rally when compared to major non-dollar currencies, the newspaper added.

China's ruling Communist Party will hold its 20th national congress starting on Oct 16, Xinhua News Agency reported late Tuesday, following an announcement made by the country's top-decision making body, the Politburo. The congress will elect a new Central Committee and the Central Commission for Discipline Inspection, Xinhua said. MNI noted that President Xi Jinping is expected to secure a historic third leadership term during the congress.

China has started to deploy its CNY200 billion national special loan scheme as it looks to support liquidity-strained property developers’ delivery of unfinished housing projects, Caixin reported. The special loans will be arranged by China Development Bank and Agricultural Development Bank of China within the existing loan quota under the guidance of the central bank. Furthermore, municipal governments should repay the debt within three years otherwise the interest rate applied to the loan will double, Caixin wrote, citing unnamed sources. The interest rate for the first two years will be 2.8%, as a result of a fiscal discount, rising to 3.2% in the third year, Caixin noted.