MNI China Daily Summary: Wednesday, May 14

EXCLUSIVE: German FDI into China is expected to remain strong in the coming years, led by a small number of firms seeking to hedge against the U.S.-China trade war and stay competitive with local rivals, while smaller Mittelstand companies hold back due to rising geopolitical risks and increasingly complex supply chains, a German industry leader in China told MNI.

POLICY: Chinese firms engaged in exports to the U.S. saw domestic sales revenue grow of 4.7% y/y in April, with domestic business as a share of total revenue increasing by 2 percentage points compared to Q1, according to data released by the State Taxation Administration.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY92 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net drain of CNY103.5 billion after offsetting the maturities of CNY195.5 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.5171% from 1.5156%, Wind Information showed. The overnight repo average increased to 1.4096% from 1.4047%.

YUAN: The currency weakened to 7.2083 to the dollar from the previous 7.2012. The PBOC set the dollar-yuan central parity rate lower at 7.1956, compared with 7.1991 set on Tuesday. The fixing was estimated at 7.1842 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6650%, up from the previous close of 1.6475, according to Wind Information.

STOCKS: The Shanghai Composite Index increased 0.86% to 3,403.95, while the CSI300 index gained 1.21% to 3,943.21. The Hang Seng Index rose 2.30% at 23,640.65.

FROM THE PRESS: The People’s Bank of China has signed a currency swap agreement with the Central Bank of Brazil, allowing for a maximum of CNY190 billion (BRL157 billion) over a five-year period, according to a PBOC statement. The agreement will facilitate using local currencies in bilateral trade and investment, while supporting financial market stability, the statement said. Additionally, the PBOC signed a Memorandum of Understanding with Brazil’s Finance Ministry to enhance coordination on financial markets and monetary policy.

The recent easing in trade tensions has strengthened yuan momentum against the U.S. dollar in the near term, buoyed by improved market sentiment, Securities Daily reported, citing Wang Qing, an analyst at Golden Credit Rating. Both the onshore and offshore yuan climbed to intraday highs not seen since November, the daily noted. Authorities' measures to stabilise economic growth and the central bank’s frequent signals to stabilise the currency will lend further support to the yuan, the newspaper said citing analysts.

Chinese buyers will remain cautious about buying U.S. LNG despite a climb down in trade tensions between the two countries, given Beijing’s 15% additional tariff on American LNG imports, imposed in February, remains in place, according to Xu Fei, senior natural gas analyst at ICIS. Buyers typically need to order LNG one to two months ahead of delivery, Xu noted, adding that buyers were concerned by the risk of policy shifts during this window. China is expected to add about 7 billion cubic meters of Russian pipeline gas to imports this year, effectively replacing previous U.S. sources, said Feng Haicheng, a natural gas analyst at Zhuochuang Information. At the same time, strong domestic natural gas production has suppressed the demand for LNG imports, Feng added.