MNI China Daily Summary: Friday, August 8

EXCLUSIVE: Beijing’s move to resume value-added tax collection on bond interest income is expected to drive yields down initially and increase coupon rates, triggering short-term market volatility before underlying fundamentals regain prominence, advisors told MNI, noting the tax could also reshape the market's investor base.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY122 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY4 billion after offsetting maturities of CNY126 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4251% from 1.4515%, Wind Information showed. The overnight repo average decreased to 1.3116% from 1.3151%. 

YUAN: The currency weakened to 7.1826 against the dollar from the previous 7.1777. The PBOC set the dollar-yuan central parity rate higher at 7.1382, compared with 7.1345 set on Thursday. The fixing was estimated at 7.1774 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6900%, flat from the previous close, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.12% to 3,635.13, while the CSI300 index decreased 0.24% to 4,104.97. The Hang Seng Index fell 0.89% to 24,858.82.

FROM THE PRESS: China’s macroeconomic policies in H2 will continue to exert force when appropriate while maintaining continuity and stability, a statement from the Ministry of Finance said, following S&P Global Ratings decision to maintain the nation's sovereign credit rating at “A+” with a “stable” outlook. Policies will focus on stabilising employment, enterprises, markets and expectations, the statement said. In the future, authorities will dynamically adjust policy reserves in a timely manner according to changes in the domestic and international situation and ensure the economy continues to improve steadily.

China’s bond underwriters must accurately calculate costs in their bid offers, ensuring that quotes cover the entire business process and all applicable amortisations, including but not limited to, labour, travel, operating expenses, system development and other essential business outlays, according to a notice from the China Interbank Market Dealers Association. A senior bond market insider told Yicai that previously some underwriters have been willing to submit loss-making bids to capture market share.

Local governments are expected to complete issuance of this year’s CNY4.4 trillion in new special bonds by end-October, experts told Yicai. Authorities plan to speed up fund deployment to spur projects, stabilise investment and support growth. Local governments have increased financing this year to acquire and reactivate idle land, aiming to balance land supply and demand, reduce idleness, strengthen regulation, ease debt pressures, and stabilise the property market.