China set to spell out new policy measures

China will publish detailed steps for a set of newly-announced policy measures in early September, state media quoted the cabinet as saying yesterday.

Last week, the cabinet announced 19 new policies, including raising the quota on policy bank financing tools by 300 billion yuan (HK$341.5 billion). That was on top of a package of 33 measures unveiled in May.

China will guide commercial banks to provide medium- and long-term loans to key projects and equipment upgrading, the cabinet was quoted as saying.

US dollar selling by China's major state-owned banks strengthened the yuan to below 6.9 per dollar, foreign exchange traders said, possibly signaling official discomfort with the Chinese currency's recent weakness. Such banks often act at the behest of the People's Bank of China.

The yuan is hovering near two-year lows, and is set to log its largest monthly loss since April, but it strengthened steadily since mid-morning yesterday to end the domestic trading session at 6.8095 per dollar.

Four currency traders said the state-bank trading drove the move, which seemed aimed at forcing the onshore close below 6.9.

"Movements after 4 pm were purely reflecting regulators' intentions," one of the traders told Reuters.

Chinese officials have been quiet about the yuan's fall through August, which has reflected both a broadly stronger US dollar and growing market concern at China's economic outlook.

Meanwhile, factory activity contracted in August for a second straight month, with the economy taking a hit from power shortages spurred by a historic drought, on top of a property market crisis and Covid outbreaks.

The official manufacturing purchasing managers index rose to 49.4 from 49 in July, according to a statement from the National Bureau of Statistics yesterday. That was slightly higher than the 49.2 in a Bloomberg survey of economists, but still below the 50 mark that separates expansion from contraction.

The non-manufacturing gauge, which measures activity in the construction and services sectors, fell to 52.6 from 53.8 in July. That was higher than the consensus forecast of 52.3.

"Power cuts and factory suspension as well as Covid outbreaks that have spread to every province have imposed a significant hurdle to production and demand," said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle.

NBS analyst Zhao Qinghe also cited infections and hot weather as "negative factors," adding that the "recovery of manufacturing production and demand still needs to be strengthened." Zhao noted that manufacturing PMI sub-gauges measuring output and new orders both remained in contraction.

Economists now expect the economy to grow just 3.5 percent this year, according to the median estimate in a Bloomberg poll. That's far lower than the official target of "around 5.5 percent" that Beijing announced earlier this year but has downplayed in recent months.