MNI China Daily Summary: Monday, August 11

EXCLUSIVE: China must undertake large-scale fiscal expansion to break free from deflation and tackle the debt problems stemming from excessive past investment, a prominent economist and advisor told MNI, urging policymakers to shift their focus from GDP growth to asset prices to boost the yuan and revive consumption.

EXCLUSIVE: Hong Kong will accelerate efforts to build offshore yuan-based capital markets and develop digital financial infrastructure, including a yuan-pegged stablecoin, to hedge against potential instability in the U.S. dollar and boost the yuan’s global role, a prominent economist and policy adviser told MNI.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY112 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY432.8 billion after offsetting maturities of CNY544.8 billion today, according to Wind Information

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.4404% from 1.4251%, Wind Information showed. The overnight repo average increased to 1.3144% from 1.3116%.

YUAN: The currency strengthened to 7.1818 against the dollar from 7.1826 on Friday. The PBOC set the dollar-yuan central parity rate higher at 7.1405, compared with 7.1382 set on Friday. The fixing was estimated at 7.1869 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.7180%, up from the previous close of 1.6900%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index gained 0.34% to 3,647.55 while the CSI300 index increased 0.43% to 4,122.55. The Hang Seng Index edged up 0.43% to 24,906.81.

FROM THE PRESS: Beijing’s latest relaxation of home purchase limits in suburban areas is expected to boost sales significantly, Securities Times reported, after the city last Friday scrapped the cap on the number of properties that can be owned outside the Fifth Ring Road. Sales centre visits rose 40-200% over the past two days compared with the previous weekend, according to Guo Yi, chief analyst at real estate agency Heshuo. The policy change is expected to benefit about 80% of new housing projects, particularly those targeting buyers seeking upgraded living conditions, the newspaper said. Non-local buyers -- those without Beijing household registration -- still need two years of social insurance payments to qualify for purchases.

China’s CPI is likely to recover moderately following recent measures to boost domestic demand, Shanghai Securities News reported, citing Wang Yunjin, chief financial researcher at the Guangkai Chief Industry Research Institute. He cited newly introduced fertility support policies, free preschool education, and loan interest subsidies for consumer and service businesses. National Bureau of Statistics data released Saturday showed CPI was flat year-on-year in July, while PPI fell 3.6% y/y. Analysts cited by the newspaper said PPI may continue to improve, supported by a lower base from the same period last year and a crackdown on excessive competition that is pushing up industrial product prices.

China's Small and Medium Enterprises Development Index was 89.0 in July, unchanged from June, China Securities Journal reported, citing data from the China Association of Small and Medium Enterprises (CASME). Based on a survey of 3,000 SMEs across eight major sectors, the index recorded gains in six sectors, including construction and transportation, while the industrial and wholesale and retail sectors declined. CASME data also showed funding conditions for SMEs improved and investment willingness edged higher, the newspaper said.