MNI China Daily Summary: Friday, August 15

EXCLUSIVE: More first-tier cities in China are expected to follow Beijing’s unexpected easing of homebuying restrictions in "non-core" areas ahead of the traditional September-October sales peak, a move that could curb recent declines in prices and transactions, advisors and analysts told MNI.

EXCLUSIVE: China’s retail sales are likely to decelerate from the 5.0% year-on-year growth recorded in the first half, despite increased efforts to boost social welfare spending, with weaker income growth and reduced fiscal outlay in the second half set to weigh on domestic consumption, local chief economists told MNI.

POLICY: Action needs to be taken to improve China’s consumer confidence after year-on-year retail sales growth slowed to 3.7% in July from H1’s 5.0%, National Bureau of Statistics spokesperson Fu Linghui told reporters.

POLICY: China’s consumption and production slowed to their weakest pace this year in July, while investment growth hit a near-five-year low, National Bureau of Statistics data showed.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY238 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY116 billion after offsetting maturities of CNY122 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.4798% from 1.4424% on Thursday, Wind Information showed. The overnight repo average increased to 1.4019% from 1.3173%.

YUAN: The currency weakened to 7.1823 against the dollar from 7.1730 on Thursday. The PBOC set the dollar-yuan central parity rate higher at 7.1371, compared with 7.1337 on Thursday. The fixing was estimated at 7.1862 by Bloomberg survey.

BONDS: The yield on 10-year China Government Bonds was last at 1.6850%, unchanged from Thursday's close, according to Choice data.

STOCKS: The Shanghai Composite Index rose 0.83% to 3,696.77, while the CSI300 index increased 0.70% to 4,202.35. The Hang Seng Index fell 0.98% to 25,270.07.

FROM THE PRESS: The PBOC is likely to maintain ample liquidity via medium-term lending facilities and outright reverse repos during the peak period of government bond issuance, Economic Information Daily reported, citing Wang Qing, analyst at Golden Credit Rating. Such operations will support credit expansion and strengthen countercyclical adjustment, Wang said. The PBOC may delay reserve requirement ratio or interest rate cuts until early Q4, as external volatility and changes in Q3 growth momentum need further observation, he added, while ruling out a near-term resumption of central bank government bond trading.

China’s recent crackdown on excessive competition will not trigger a broad price rise, as prices remain dependent on a recovery in domestic demand, Economic Daily said in a commentary. The impact is structural and moderate, it said. PPI’s m/m decline narrowed to 0.2% in July from -0.4% in June, the first deceleration in contraction since March, suggesting improved enterprise profits from curbing disorderly price competition and eliminating inefficient capacity. Core CPI’s third straight monthly gain was partly driven by reduced price wars in the automobile and home appliance sectors under policy guidance, the newspaper said.

Medium- and long-term A-share market investors, including insurers, are increasing allocations, while northbound funds have recently seen continuous net inflows, Securities Daily said in commentary, noting a sustained upward trend is expected to take shape gradually, supported by capital inflows, improved fundamentals and policy support. The margin trading balance has returned to CNY2 trillion for the first time in a decade, with funds steadily increasing positions. Rallies driven by diverse funding sources tend to be more sustainable, the newspaper said.