MNI China Daily Summary: Friday, June 6

EXCLUSIVE: The People’s Bank of China (PBOC) would be likely to respond to any economic pressure from U.S. tariffs and domestic demand with a cut to its policy rate and reserve requirements towards the end of the year, though officials remain wary of slipping into a Japan-style liquidity trap and will want to avoid excessive further monetary easing, policy advisors and economists told MNI.

EXCLUSIVE: China’s copper demand is expected to strengthen from last year’s 3.2% y/y growth as greater activity in new industries, such as electric vehicles (EV), more than offsets persistent declines in the property market and traditional sectors, local analysts told MNI.

POLICY: The majority of U.S. firms operating in China are focused on localising operations or shifting some production to third countries rather than exiting the country, a recent flash survey of 112 firms by the American Chamber of Commerce in China published on Friday showed, with zero respondents reporting plans to shift output back to the US.

LIQUIDITY: The PBOC conducted CNY135 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY156.1 billion after offsetting the maturities of CNY291.1 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5323% from 1.5509% , Wind Information showed. The overnight repo average increased to 1.4124% from 1.4120%. 

YUAN: The currency weakened to 7.1847 against the dollar from the previous 7.1838. The PBOC set the dollar-yuan central parity rate lower at 7.1845, compared with 7.1865 set on Thursday. The fixing was estimated at 7.1755 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6660%, down from the previous close of 1.6675%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.04% to 3,385.36, while the CSI300 index decreased 0.09% to 3,873.98. The Hang Seng Index fell 0.48% to 23,792.54.

FROM THE PRESS: The PBOC will conduct a CNY1 trillion outright reverse repurchase operation on Friday to maintain ample liquidity in the banking system, according to a statement issued on Thursday. Authorities may be addressing a peak in the maturity of interbank certificates of deposit in recent months, said Wang Qing, analyst with Golden Credit Rating, noting a large-scale liquidity injection at the beginning of the month when the funding environment and bond market were operating smoothly was unconventional. The operation has a 91 day term and uses fixed-quantity, interest-rate and multiple-price bidding methods, the announcement said, marking the first time such information has been detailed in advance, after eight consecutive months of such operation, the Economic Information Daily noted.

China issued CNY1.6 trillion in local government special bonds during the first five months of the year, up 41% on last year, data from the Ministry of Finance and China Bond Information Network showed. According to Enterprise Early Warning data, 30% went towards municipal and industrial park infrastructure, with 20% on transportation, 8% to land reserves, 7% to shantytown renovation, 6% to agriculture and water projects, and 5% to healthcare. Authorities issued CNY779 billion of local government bonds in May, down 14% y/y, taking the total issuance during the first five months to CNY4.3 trillion, up 53% y/y. Sun Jingyuan, head of corporate and institutional business at China Chengxin Credit Rating, attributed last month’s decline to a high-base effect, noting that delayed issuances in early 2024 were released in May, inflating the prior-year comparison. (Source: Yicai)

China-US relations stand at a critical historical node and are amongst the most important in the world, Vice President Han Zheng told a U.S. delegation at the China-US High-Level Track 2 Dialogue held in Beijing. Han hoped the forum can promote the stable, healthy and sustainable development of China-US relations, Xinhua said. The U.S. side noted China's economic development was admirable and the two sides should strengthen communication and cooperation in areas such as trade and investment.