MNI China Daily Summary: Wednesday, May 28

EXCLUSIVE: China’s hopes of reviving the Comprehensive Agreement on Investment (CAI) with the EU are fading, as Brussels focuses on derisking supply chains and is more likely to pursue targeted cooperation in areas like green industry and artificial intelligence, policy advisors told MNI.

EXCLUSIVE: China’s yuan-denominated panda bond market could double in size, buoyed by low domestic interest rates and policy efforts to internationalise the yuan, analysts and economists told MNI, adding that issuance from emerging markets including Brazil is likely to increase as trade and financial ties with China deepen.

EXCLUSIVE: Chinese interbank money market traders saw a lower chance of further central bank easing in the second half of the year and expressed concern over marginal tightness in liquidity next month after recent cuts to policy rates and the reserve requirement ratio, MNI’s China Money Market Index indicated on Wednesday.

POLICY: European firms operating in China are facing record levels of difficulty doing business in the country, said Jens Eskelund, president at the European Union Chamber of Commerce in China, citing increasing economic, regulatory and political concerns among members.

LIQUIDITY: The PBOC conducted CNY215.5 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY58.5 billion after offsetting the maturities of CNY157 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) fell to 1.6062% from 1.6186%, Wind Information showed. The overnight repo average decreased to 1.4141% from 1.4480%.

YUAN: The currency strengthened to 7.1907 to the dollar from the previous 7.1949. The PBOC set the dollar-yuan central parity rate higher at 7.1894, compared with 7.1876 set on Tuesday. The fixing was estimated at 7.2014 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6500%, up from the previous close of 1.6450%, according to Wind Information.

STOCKS: The Shanghai Composite Index decreased 0.02% to 3,339.93, while the CSI300 index dropped 0.08% to 3,836.24. The Hang Seng Index declined 0.53% at 23,258.31.

FROM THE PRESS: China must ensure GDP has a reasonable proportion of manufacturing value added by promoting industrial upgrading and strengthening independent innovation, said the Economic Daily in a commentary. Authorities should be vigilant after manufacturing fell to 26.2% in 2023 from 28.1% in 2016,  the newspaper said, noting the sector was irreplaceable in driving economic growth and competing globally.

Sino-U.S. economic and trade relations are expected to improve despite periodic fluctuations, according to Peng Bo, a researcher at the Institute of International Trade and Economic Cooperation at the Ministry of Commerce. However, domestic political factors in the U.S. could interfere with future talks as different factions and interest groups hold divergent views on trade policies. The two sides face the risk of tariffs being re-imposed if a new agreement cannot be reached by the end of the 90 day suspension period, Peng noted.

Chinese Premier Li Qiang called on members of the Association of Southeast Asian Nations (ASEAN) and the Gulf Cooperation Council (GCC) to work with China on building a large shared market with open trade and investment, Xinhua News Agency reported, citing the Premier’s recent speech at the inaugural ASEAN-China-GCC summit held in Kuala Lumpur. Following the completion of China-ASEAN Free Trade 3.0 negotiations, Beijing expects a fast resolution to the China-GCC free trade area agreement talks which will help elevate trilateral trade levels, Li added.