MNI China Daily Summary: Friday, July 10

     BEIJING (MNI) - EXCLUSIVE: Chinese policy advisors and forex experts expect

the yuan to remain on the weaker side of 7 to the dollar for most of the rest of

the year, despite recent strength during an equity market surge, though they

anticipate volatile two-way trading as global uncertainties weigh against

capital inflows and China's economic recovery, they told MNI. The People's Bank

of China (PBOC) is becoming more tolerant of forex fluctuations as the economy

moves towards liberalisation, said Tang Min, a counsellor at the State Council,

noting also that the cost of controlling the exchange rate is increasing. But

the PBOC could step in both in the case of excessive capital inflows or of too

steep a yuan sell-off if tensions flare between China and the U.S., he said.

     DATA: New loans issued in China rose in June for the first time in three

months to CNY1.81 trillion, compared with CNY1.48 trillion in May, just shy of

forecasts looking for a CNY1.82 trillion increase, data released today by the

PBOC showed. M2 money supply rose 11.1% y/y, maintaining the same pace of

increase for a third straight month, in line with forecasts. Aggregate financing

to the economy rose for the third month running to CNY3.43 trillion, up from

CNY3.19 trillion in May, above the CNY3.13 trillion projected by analysts.

     LIQUIDITY: The PBOC skipped open market operations, leaving liquidity

unchanged, according to Wind Information. Liquidity in the banking system is

reasonable and ample, the PBOC said on its website.

     RATES: The seven-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.2074% from Thursday's close of 2.1791%, Wind

Information showed. The overnight repo average decreased to 2.1665% from 2.1998%

on Thursday.

     YUAN: The currency weakened to 7.0090 against the dollar from Thursday's

close of 6.9862. PBOC set the dollar-yuan central parity rate lower for a fourth

day at 6.9943, compared with the 7.0085 set on Thursday, the lowest since March

13.

     BONDS: The yield on 10-year China Government Bonds was last at 3.0300%,

down from Thursday's close of 3.0800, according to Wind Information.

     STOCKS: The Shanghai Composite Index lost 1.95% to 3,383.32, ending an

eight-day rally, as financial shares led the correction. Hong Kong's Hang Seng

Index tumbled 1.84% to 25,727.41.

     FROM THE PRESS: China's inflation will weaken after a brief rebound in June

fueled by rising pork and vegetable prices, as pork price gain will continue to

narrow as supply of hogs increases, the Shanghai Securities Journal reported

citing analysts including Tang Jianwei, chief researcher at the Bank of

Communications. Annual CPI will be about 3%, the newspaper added.

     The yuan may rise steadily in the second half supported by economic

fundamentals, inflow of foreign capital and a relatively weak U.S. dollar, the

Economic Information Daily reported citing analysts. The expectation of a

stronger yuan also boosted foreign investors' confidence in yuan assets, the

newspaper added. The yuan rose above 7 on the dollar and closed at 6.9862

yesterday, an increase of 314 points from the previous trading day.

     The PBOC may restart injecting liquidity through reverse repo to fill in a

gap due to the upcoming tax season around mid-July, and the issuance of CNY1

trillion in special Treasury bonds to be completed by end-July, the China

Securities Journal reported citing analysts. The PBOC may also roll over CNY400

billion of medium-term lending facilities maturing in the second half of July,

the newspaper said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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