MNI China Daily Summary: Wednesday, September 28

POLICY: The People’s Bank of China (PBOC) will continue to watch the yuan against a basket of major trade partner currencies rather than exclusively focus on the U.S dollar, though a response is expected after the pair broke through 7.2 on Wednesday, analysts said.

LIQUIDITY: Liquidity conditions across China’s interbank market tightened modestly into quarter-end, even as the PBOC injected more funds into the system, the latest MNI Liquidity Conditions Index shows. The Liquidity Condition Index, rose to 59.4 in September from 53.1 previously, with 34.4% of the participants reporting marginally tighter liquidity condition towards the end of the month. The higher the index reading, the tighter liquidity appears to survey participants.

LIQUIDITY: The PBOC injected CNY133 billion via 7-day reverse repos and CNY67 billion via 14-day reverse repos with the rates unchanged at 2.00% and 2.15%, respectively. The operations have led to a net injection of CNY198 billion after offsetting the maturity of CNY2 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity stable at quarter-end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6717% from the close of 1.6931% on Tuesday, Wind Information showed. The overnight repo average decreased to 1.2569% from the previous 1.3842%.

YUAN: The currency weakened to 7.2458 against the dollar from 7.1580 on Tuesday. The PBOC set the dollar-yuan central parity rate higher for a ninth trading day at 7.1107, compared with 7.0722 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.7425%, up from Tuesday's close of 2.7175%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 1.58% at 3,045.07, while the CSI300 index lost 1.63% to 3,828.71. The Hang Seng Index tumbled 3.41% to 17,250.88.

FROM THE PRESS: The PBOC is likely to maintain liquidity injections via reverse repo operations to keep month-end liquidity reasonably ample and stabilise money market interest rates, the China Securities Journal reported citing analysts. The PBOC has injected net liquidity over the past seven trading days and the net injection of CNY173 billion on Tuesday was the highest since the end of February, the newspaper said. The market is relatively short of long-term funds as the end of Q3 and the week-long National Day holiday in early October approaches. Increasing the supply of funds can stabilise market expectations and reduce the need for precautionary funds, the newspaper said citing analysts.

China will increase efforts to support firms, especially SMEs and manufacturers by delaying the payment of some administrative fees and deposits, CCTV News reported citing the State Council executive meeting chaired by Premier Li. The payment of 14 administrative charges including farmland reclamation and sewage treatment fees totaling over CNY53 billion will be postponed in Q4, as well as the payment of various project deposits totaling about CNY63 billion, the meeting said.

The profitability of industrial enterprises continued to recover in August as 27 out of 41 major industrial sectors reported improved profit performances, the China Securities Journal reported citing data from the National Bureau of Statistics. Easing commodity prices helped narrow the profit decline of equipment manufacturing for a fourth consecutive month to -2.0% in the first eight months compared to -3.7% in Jan-July period. Automobile manufacturing profits increased by 1.02 times year-on-year in August, the highest growth rate in a year, driven by stimulus to boost auto consumption, the newspaper said. Industrial profits are expected to continue to improve as policymakers focus on expanding demand and strengthening rescue policies, the newspaper said citing analysts.