MNI China Daily Summary: Thursday, July 3

EXCLUSIVE: The yuan is likely to continue to strengthen against a weak dollar in the second half of the year, though the People’s Bank of China (PBOC) will be keen to avoid any significant appreciation that could pressure exports, policy advisors and traders told MNI.

POLICY: China is assessing the recent U.S. Vietnam trade agreement and will resolutely counter any party reaching a deal at the expense of China’s interests, said He Yongqian, spokesperson for the Ministry of Commerce.

LIQUIDITY: The PBOC conducted CNY57.2 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY452.1 billion after offsetting the maturity of CNY509.3 reverse repo today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.4674% from 1.5053% previously, Wind Information showed. The overnight repo average decreased to 1.3150% from the previous 1.3597%. 

YUAN: The currency strengthened to 7.1611 against the dollar from the previous 7.1670. The PBOC set the dollar-yuan central parity rate lower at 7.1523 on Thursday, compared with 7.1546 set on Wednesday. The fixing was estimated at 7.1624 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6395%, up from the previous close of 1.6390%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged up 0.18% to 3,461.15, while the CSI300 index increased 0.62% to 3,968.07. The Hang Seng Index lost 0.63% to 24,069.94.

FROM THE PRESS: Several industries have announced a new round of cuts to overcapacity after the Central Financial and Economic Commission meeting urged the orderly withdrawal of obsolete production, Securities Times reported. Authorities have notified certain steel mills to limit production, while leading photovoltaic glass companies announced a 30% production cut starting in July, after prices fell below the cost. Steel and photovoltaic sector' stock prices saw a surge in daily limits on Wednesday.

Hot weather in Europe has driven a 30% increase in demand for Chinese exported air conditioning units, industry insiders told Yicai, with one company chief considering moving production to Europe to bypass trade policies and increase brand influence. China’s sales were further improved by the EU’s demand for environmentally friendly and cost-effective products, Yicai said. Looking ahead, leading companies such as Midea and Haier should enter the high-end market and shift from price to value-based competition, a researcher said.

The China Logistics Prosperity Index (LPI) reached 50.8 in June, up 0.2 percentage points m/m, according to the China Federation of Logistics and Purchasing. The index, which measures the sector’s overall health, showed a slight increase in business volume mainly driven by improved demand in eastern regions and the weakening of external shocks, said Hu Haon, deputy chief economist at the China Logistics Information Center. Looking ahead, logistics firms faced pressure given the early arrival of flood season, Hu added.