MNI China Daily Summary: Wednesday, September 7

POLICY: The People’s Bank of China (PBOC) may need to deploy more of its tools to curb any sharp falls in the yuan, said analysts and economists as the currency threatens to break through 7 against the U.S. dollar.

DATA: China's export growth slowed to a 7.1% year-on-year pace in August, down from the prior 18.0% increase and far below the consensus forecast of 13.0%, China Customs data showed. The slowdown, a result of a weaker external demand, was also impacted by a high base effect and the sharp depreciation of yuan (down 2.25%) during the month. Imports rose 0.3% in August, decelerating from the 2.3% growth in July and missing the consensus forecast for a 1.2% gain, the data showed. High base effects and falling commodity prices were primary reasons for the slide.

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 1.4528% from the close of 1.4015% on Tuesday, Wind Information showed. The overnight repo average increased to 1.1154% from the previous 1.0709%.

YUAN: The currency weakened to 6.9715 against the dollar from 6.9485 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.9160, compared with 6.9096 on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.6260%, up from Tuesday's close of 2.6200%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.09% at 3,246.29, while the CSI300 index gained 0.07% to 4,054.98. The Hang Seng Index lost 0.83% to 19,044.30.

FROM THE PRESS: Concerns about whether the yuan will breach the critical level of 7 against the U.S. dollar are misplaced as it continues to appreciate against major non-U.S. dollar currencies, the 21st Century Business Herald reported citing analysts. The three major yuan indices - CFETS, BIS and SDR - remain relatively stable, meaning regulatory authorities will take a moderate approach to regulating the FX market and will not pay too much attention to specific levels, the newspaper said, citing Wang Qing, chief macro analyst at Golden Credit Rating. The yuan has broken through the mark many times since exchange rate reform in 2015, with the PBOC emphasizing two-way movements, the newspaper said.

The combination of the PBOC's ample policy tools and a recovery in the economy should allow the yuan to stabilise at 6.7-6.9 against the U.S. dollar by the end of 2022, Securities Daily reported, citing Cheng Qiang, chief macroeconomic analyst at CITIC Securities. The yuan is expected to steady should growth improve in mid-to-late September as a new round of pro-growth policies kick in. The PBOC has the capability to stabilise the yuan and manage capital flows should the currency continue to weaken rapidly against the dollar, the newspaper said.

China's economy will continue a gradual recovery over coming months as Covid outbreaks are controlled, Yicai.com reported, citing a poll of 18 economists. Industrial output may accelerate moderately to around 4% in August from July’s 3.8%, as heat wave-related power rationing may deduct less than one percentage point from industrial electricity use. The median forecast for fixed-asset investment growth in the first eight months is 5.46%, lower than the prior 5.7%, as weakness in property and manufacturing investment offsets expanding infrastructure investment. Consumption growth may rebound to 3.83% from July’s 2.7% due to improved car sales in H2.