CHINA PRESS: Government Bond Supply To Decrease In Q4

China's industrial profits fell 4.3% y/y in June, following May’s 9.1% drop, while first-half profits decreased 1.8%, widening from the 1.1% decline in the first five months, China Securities Journal reported, citing data by National Bureau of Statistics on Sunday. Manufacturing profits rose 1.4% in June, reversing May’s decline of 4.1%, after promotional events accelerated car sales growth and boosted equipment manufacturing demand.

China needs further countercyclical policies in H2 to achieve the annual economic growth target, given pressure from tariffs, real estate and limited fiscal resources, according to a Q2 report by the China Finance 40 Forum (CF40). Authorities should fully utilise the funds transferred into the public budget to achieve the annual growth target for broad fiscal expenditure, as well as consider issuing an additional CNY2.3 trillion of government bonds, the report said. According to the current plan, CNY7.6 trillion can be issued from June to December, a lower amount compared to last year, the report noted.

The People’s Bank of China is expected to maintain a net injection of liquidity through open market operations to smooth out month-end fluctuations, while shifting focus toward optimising the policy framework and improving transmission efficiency, Securities Daily reported, citing Ming Ming, chief economist at CITIC Securities. The PBOC may increase the use of mid-term liquidity tools, given that interbank liquidity faces further pressure in August and September, said Wen Bin, chief economist at China Minsheng Bank, noting a peak in government bond supply, with average monthly net financing likely to reach CNY1.5-1.6 trillion. The central bank could also inject liquidity through purchasing government bonds and cutting the reserve requirement ratio, Wen added.