MNI China Daily Summary: Thursday, April 3

POLICY: China is likely to respond with proportional tariffs on U.S. imports in retaliation to 34% reciprocal tariffs on Chinese goods, but it will prioritise strengthening its relations with the European Union and other nations, advisors told MNI, with Europe in particular offering potential for taking goods previously sent to the U.S.

POLICY: China will fight back against the U.S.'s so called reciprocal tariffs revealed Wednesday local time and take decisive countermeasures to safeguard its interests, said the Ministry of Commerce in a statement.

POLICY: China has conducted extensive discussion and reached broad consensus with EU, Japan, and South Korea about strengthening regional and multilateral cooperation, He Yadong, spokesman at the Ministry of Commerce.

LIQUIDITY: The People's Bank of China (PBOC) conducted CNY223.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY4.9 billion after offsetting the maturity of CNY218.5 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.6981% from 1.8418%, Wind Information showed. The overnight repo average decreased to 1.6237% from 1.7392%.

YUAN: The currency weakened to 7.3043 against the dollar from 7.2719 on Wednesday. The PBOC set the dollar-yuan central parity rate higher at 7.1889, compared with 7.1793 set on Wednesday. The fixing was estimated at 7.2624 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.7100%, down from Wednesday's close of 1.7850%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.24% to 3,342.01 while the CSI300 index decreased 0.59% to 3,861.50. The Hang Seng Index was down 1.52% to 22,849.81.

FROM THE PRESS: China's foreign investment could improve faster than expected amid a better growth outlook and capital-market recovery, said Pan Yuanyuan, a researcher from the Chinese Academy of Social Sciences, noting outward investment and attracting FDI were closely related. China's non-financial direct investment in RCEP members grew 26% y/y, significantly higher than the average due to a lower risk profile. Singapore ranks first as China’s outstanding ODI destination, followed by the U.S. and Australia. (Source: 21st Century Business Herald)

Countries making concessions to Washington will only embolden the U.S. administration’s appetite for bullying, state media outlet Xinhua said in a commentary, published several hours before President Donald Trump’s announcement on reciprocal tariffs. The news outlet highlighted Mexico’s efforts to reach an agreement on troop reinforcement at the border failed to prevent punitive duties and Japan’s bowing to the Plaza Accord during the 1980’s contributed to the nation’s lost decade. Countries should not pray for a change in Washington’s mindset, but stand together for a collective response, the outlet added.

China’s three major stock markets’ transaction volume totalled CNY993 billion on April 2, falling below CNY1 trillion for the first time since Jan 13, as investors adopted a wait-and-see approach, Yicai.com reported. Continued company performance disclosures and tariff uncertainty increased investor caution, and synergy between funds decreased, the newspaper said, citing analysts. However, the bull market would be difficult to stop despite trading volume shrinking to one-third of its peak, said Fan Jituo, analyst at Cinda Securities, noting any unexpected tariff effect may cause a short-term impact only.