MNI China Daily Summary: Monday, August 18

EXCLUSIVE: It is too early to say whether China and the U.S. will reach a permanent trade deal despite another 90-day extension of the tariff pause between the two countries, a policy advisor to the Ministry of Commerce told MNI, adding that China will also continue to insist on its right to purchase Russian oil but that the truce would allow exporters time to take advantage of western holiday buying.

POLICY: China’s export of car passenger vehicles reached USD8.9 billion in July, up 13.4% m/m, of which electric vehicles totalled USD3.3 billion, up 25.0% m/m, the Wind data agency reported on Monday, quoting data released by the General Administration of Customs.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY266.5 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY154.5 billion after offsetting maturities of CNY112 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.5144% from 1.4798%, Wind Information showed. The overnight repo average increased to 1.4489% from 1.4019%. 

YUAN: The currency strengthened to 7.1792 against the dollar from the previous 7.1823. The PBOC set the dollar-yuan central parity rate lower at 7.1322, compared with 7.1371 set on Friday. The fixing was estimated at 7.1812 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.7770%, up from the previous close of 1.7440%, according to Wind Information. 

STOCKS: The Shanghai Composite Index rose 0.85% to 3,728.03, while the CSI300 index increased 0.88% to 4,239.41. The Hang Seng Index fell 0.37% to 25,176.85. 

FROM THE PRESS: Authorities must prioritise domestic demand in H2 as the drag from U.S. tariff policy could increase as front-loading effects fade, according to Guan Tao, a former senior official at the State Administration of Foreign Exchange. Guan highlighted that Chinese exporters did not return to the U.S. market fully following the Geneva trade truce in May. In April, China’s export growth rate to the U.S. lagged non-U.S. markets by 34.0 percentage points. The negative gap widened to 46.0 pp in May and eased to 25.8 pp in June, but remained at historically elevated levels, Guan added.

China’s suspension of consumer goods replacement programmes in some regions led to a fall in retail sales growth to 3.7% year-on-year in July, the weakest monthly pace so far this year, according to Wang Qing, chief macro analyst at Oriental Jincheng. However, with the release of CNY69 billion in national subsidies in late July, consumer spending is expected to rebound in August. Gao Ruidong, chief economist at Everbright Securities, observed that several economic indicators weakened in June, dragged down by extreme heat, falling prices and declining property sales. He added that investment momentum in traditional industries has diminished while expansion in emerging sectors has yet to fully offset the slowdown.

The PBOC will maintain a moderately accommodative monetary stance in Q2, with the priority on stabilising employment, businesses, markets, and expectations, the central bank's latest quarterly report said. Monetary policy will be calibrated in line with domestic and external economic and financial conditions as well as market dynamics, with a focus on preserving ample liquidity and aligning growth in aggregate social financing and money supply with economic expansion and inflation targets, the report said.