MNI China Daily Summary: Friday, July 12

     POLICY: The yuan will likely remain strong and stable, underpinned by an

increasing capital account surplus and the strength of the world's second

largest economy, helping boost the globalization of the currency, Wei Benhua,

former deputy director of State Administration of Foreign Exchange, told MNI in

an interview. "A stable and strong currency is a precondition for yuan

internationalization in the medium and long term," said Wei, now a senior fellow

with the International Monetary Institute (IMI) of Renmin University of China. 

     DATA: Exports fell 1.3% y/y, still better than -2.0% projected by MNI

survey, to $212.84 billion, slightly less than $213.84 billion in May, data by

the China Customs showed. It reversed the 1.1% gain in May. Imports dropped 7.3%

y/y to $161.86 billion, worse than forecast -2% and followed -8.5% in May, and

were down from $172.19 billion last month. 

     DATA: China's M2 expanded 8.5% y/y in June, unchanged for the third month,

slightly less than 8.6% projection of an MNI survey, data by the central bank

today showed. New loans totalled CNY1.66 trillion, up from CNY1.18 trillion in

May and compares with CNY1.65 trillion projected by an MNI survey. Aggregate

financing to the economy rose CNY2.26 trillion from May's CNY1.4 trillion,

compared with the CNY2 trillion projection. 

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMOs) for a 15th straight day today, resulting in a net drain of CNY100 billion

after the maturity of reverse repos, according to Wind Information. Total

liquidity in the banking system has declined due to the maturity of reverse

repos and the tax season, but it remains at a reasonable and ample level, the

PBOC said. The PBOC has drained a net total of CNY220 billion, Wind Information

said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.4925% from Thursday's close of 2.4284%, Wind

Information showed. The overnight repo average increased to 2.2375% from

Thursday's 1.9969%.

     YUAN: The yuan weakened to 6.8783 against the dollar from Thursday's close

of 6.8658. The PBOC set the dollar-yuan central parity rate stronger at 6.8662

today, compared with 6.8677 on Thursday.

     BONDS: The yield on 10-year China Government Bond was last at 3.1500%, down

from the close of 3.1675 on Thursday, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index increased 0.44% to 2,930.55.

Hong Kong's Hang Seng Index edged up 0.14% to 28,471.62.

     FROM THE PRESS: The Chinese economy may grow 6.2-6.4% in the second half,

the 21st Century Business Herald said in a projection. While infrastructure

spending is critical, it alone isn't enough to drive a significant rebound in

overall investment, the newspaper said. Manufacturing investment may stabilize

at a low level, while property investment is likely to make a bigger

contribution to GDP than last year, the newspaper said.

     China's high inflation is unlikely to impact monetary policy in the short

term because it is being driven by higher food costs, a small component of

disposable income, the China Securities Journal said citing Tang Liming, an

analyst at Dongxing Securities. China's monetary policy may have further room

for easing if the U.S. Fed cuts rates, it said. China may make targeted cuts to

the reserve requirement ratio (RRR), and offer preferential rates for private

and small companies and those in high-tech manufacturing and new service

industries, the journal said.

     China still has room to expand market access in trade and investment,

Economic Information Daily said in a front-page commentary today. China should

further promote the opening of the automobile, telecommunications and financial

markets for foreign investment, as well as establish partnerships with

multinational corporations to boost their confidence in doing business in China,

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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