MNI China Daily Summary: Wednesday, August 20

EXCLUSIVE: The People’s Bank of China (PBOC) is keeping liquidity ample to support credit supply and reassure bond traders, even as a bull stock market draws funds away from bonds, while holding policy rates steady amid economic uncertainty.

POLICY: China's Loan Prime Rate held steady on Wednesday, in line with expectations as the central bank highlights structural facilities to support key sectors. The LPR remained unchanged at 3.0% for the one-year maturity and 3.5% for the five-year tenor and over. Both rates fell in May by 10bp after the PBOC lowered the seven-day reverse repo rate – its benchmark policy rate – 10bp to 1.4% on May 8, followed by a 50bp reduction to the reserve requirement ratio on May 15.

LIQUIDITY: The PBOC conducted CNY616 billion via seven-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY497.5 billion after offsetting maturities of CNY118.5 billion, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.5680% from 1.5452%, Wind Information showed. The overnight repo average increased to 1.4744% from 1.4715%.

YUAN: The currency strengthened to 7.1793 to the dollar from 7.1820 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 7.1384, compared with 7.1359 set on Tuesday. The fixing was estimated at 7.1905 by Bloomberg survey today. 

BONDS: The yield on 10-year China Government Bonds was last at 1.7771%, up from Tuesday's close of 1.7675%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index was up 1.04% to 3,766.21, while the CSI300 index rose 1.14% to 4,271.40. The Hang Seng Index edged up 0.17% at 25,165.94.

FROM THE PRESS: China has broadened access to its private pension programme, a scheme initially piloted in 2022 and rolled out nationwide at the end of 2024, the Ministry of Human Resources and Social Security announced. According to the notice, an individual can access the pension fund if they, or their spouse or underage children, have incurred medical expenses within the past 12 months and the cost, after deducting reimbursements from public medical insurance, exceeds the previous year’s per capita disposable income for their province. Withdrawals are also permitted for individuals who have received unemployment insurance for up to 12 months within a two-year period, as well as for those currently receiving minimum subsistence allowances. Previously, private pension withdrawals were restricted to cases where participants reached statutory retirement age, lost the ability to work, or emigrated abroad.

China’s civil aviation sector posted record traffic in July, with domestic airlines carrying 64.7 million passengers and international routes handling seven million, up 2.7% and 15.7% y/y respectively, according to Civil Aviation Administration data. Cargo and mail volumes rose 15.3% y/y to 867,000 tonnes, boosted by traders frontloading shipments during the U.S.-China trade truce period. Passenger growth was driven by lower fares, said Lin Zhijie, an expert at a civil aviation think tank, who cautioned that consumer confidence remains weak and high-speed rail is increasingly diverting demand.

Recent official provincial reports have flagged recurring issues in the use of special bonds, including overstated project scale and returns, idle funds and rising repayment risks, Yicai reported. The audits cited monitoring loopholes that meant that data was inaccurate or incomplete, with some funds misappropriated. Luo Zhiheng, chief economist at Yuekai Securities, said local governments’ project management and oversight capacity has lagged behind the rapid expansion of special bond issuance.