MNI China Daily Summary: Monday, July 28

POLICY: China’s taxation authorities expect to implement CNY600 billion of tax breaks in H2, after reductions totalled CNY9.9 trillion between 2021 and end of H1 2025, according to Cai Zili, deputy director at the State Administration of Taxation, speaking at a press conference.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY495.8 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY325.1 billion after offsetting maturities of CNY170.7 billion today, according to Wind Information

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.5806% from 1.6523%, Wind Information showed. The overnight repo average decreased to 1.4625% from 1.5174%.

YUAN: The currency weakened to 7.1729 against the dollar from 7.1679 on Friday. The PBOC set the dollar-yuan central parity rate higher at 7.1467, compared with 7.1419 set on Friday. The fixing was estimated at 7.1686 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6800%, down from the previous close of 1.6900%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index edged up 0.12% to 3,597.94 while the CSI300 index increased 0.21% to 4,135.82. The Hang Seng Index rose 0.68% to 25,562.13.

FROM THE PRESS: China needs further countercyclical policies in H2 to achieve the annual economic growth target, given pressure from tariffs, real estate and limited fiscal resources, according to a Q2 report by the China Finance 40 Forum (CF40). Authorities should fully utilise the funds transferred into the public budget to achieve the annual growth target for broad fiscal expenditure, as well as consider issuing an additional CNY2.3 trillion of government bonds, the report said. According to the current plan, CNY7.6 trillion can be issued from June to December, a lower amount compared to last year, the report noted.

China's industrial profits fell 4.3% y/y in June, following May’s 9.1% drop, while first-half profits decreased 1.8%, widening from the 1.1% decline in the first five months, China Securities Journal reported, citing data by National Bureau of Statistics on Sunday. Manufacturing profits rose 1.4% in June, reversing May’s decline of 4.1%, after promotional events accelerated car sales growth and boosted equipment manufacturing demand.

The People’s Bank of China is expected to maintain a net injection of liquidity through open market operations to smooth out month-end fluctuations, while shifting focus toward optimising the policy framework and improving transmission efficiency, Securities Daily reported, citing Ming Ming, chief economist at CITIC Securities. The PBOC may increase the use of mid-term liquidity tools, given that interbank liquidity faces further pressure in August and September, said Wen Bin, chief economist at China Minsheng Bank, noting a peak in government bond supply, with average monthly net financing likely to reach CNY1.5-1.6 trillion. The central bank could also inject liquidity through purchasing government bonds and cutting the reserve requirement ratio, Wen added.