MNI China Daily Summary: Tuesday, July 1

POLICY: China will boost efforts to push the construction of a unified national market and promote the orderly withdrawal of obsolete production capacity, Xinhua News Agency reported reported following a Central Financial and Economic Affairs Commission meeting presided over by President Xi Jinping.

DATA: China's Caixin manufacturing PMI came in at 50.4 in June, up from May's 48.3, rising back into the expansionary zone above the 50 mark as the China-U.S. tariff war de-escalated, the financial publisher said.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY131 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY275.5 billion after offsetting the maturity of CNY406.5 reverse repo today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.5457% from 1.9159%, Wind Information showed. The overnight repo average fell to 1.3673% from 1.5102%.

YUAN: The currency strengthened to 7.1618 against the dollar from the previous 7.1656. The PBOC set the dollar-yuan central parity rate lower at 7.1534, compared with 7.1586 set on Monday. The fixing was estimated at 7.1532 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6432%, down from the previous close of 1.6475%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index rose by 0.39% to 3,457.75, while the CSI300 index was up 0.17% at 3,942.76. The Hang Seng Index lost 0.87% at 24,072.28.

FROM THE PRESS: China has approved additional Qualified Domestic Institutional Investor (QDII) quotas, taking the total to USD170 billion by the end of June 2025, up USD3 billion month-on-month, Securities Times reported. The measure follows comments from Zhu Hexin, deputy governor at the People’s Bank of China and director at the State Administration of Foreign Exchange, that authorities would soon issue new allowances to meet the reasonable needs of domestic entities for overseas investment. Regarding future plans, a SAFE official said the government would seek to balance financial openness and security, and continue issuing QDII quotas in a measured manner.

China’s June Purchasing Managers Index reached 49.7 in June, up 0.2 percentage points from the previous month, which demonstrated the effects of incremental policies, said Zhang Liqun, analyst at the China Federation of Logistics and Purchasing. However, the PMI remained below the 50.0 expansion threshold, indicating a growing proportion of firms facing insufficient demand, Zhang added. Authorities need to intensify policies that expand domestic demand, especially by increasing investment in public goods, Zhang noted.

China will grant foreign investors a 10% corporate income tax credit on direct domestic investments funded by dividends from Chinese resident companies, Xinhua News Agency reported. The measure, which takes effect from January 1 2025 through December 31, 2028, allows qualified firms to carry forward unused credits and apply lower rates under existing tax treaties. Eligible investors may reinvest dividends in equity capital, establishing new resident enterprises, or buying resident firms’ shares from non-affiliated parties, the newspaper said.