MNI China Daily Summary: Friday, July 6

     TOP NEWS: The People's Bank of China (PBOC) responded promptly to stabilize

market sentiment as the trade war between the world's biggest economic powers

got underway. "The impact of U.S. tariffs will be limited as the dependence of

China's economy on the outside world is low," Sheng Songcheng, an adviser to the

People's Bank of China, said in comments distributed to MNI over WeChat.

     TOP NEWS: China has to take counter measures against the US tariff action

which came into effect on Friday and has "initiated the largest-scale trade war

in economic history," China's Ministry of Commerce (MOC) said. The U.S. move is

"typical trade bullying" and seriously damages the integrity of global

industrial value chains, harming companies and consumers, according to a

statement on the MOC's website shortly after the U.S. levies on China took

effect.

     YUAN: Macquarie suggested that China "may be willing to put up with a

weaker yuan still, but does not want a sharp devaluation like 2015 and 2016."

Macquarie point to growing pressure for easier domestic liquidity, a slowing

economy & intensifying trade tensions with US. They look for a gradual rise in

USD/CNY to 6.900 by the end of the year as a rate that China would be

comfortable with.

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

(OMO) on Friday, stating on its website that a relatively high level of

liquidity can absorb maturing reverse repos. That resulted in a net drain of

CNY110 billion, as the same amount of reverse repos matured today, according to

the PBOC. The PBOC has drained a net of CNY500 billion in reverse repos this

week; CFETS-ICAP's money-market sentiment index closed at 28 on Thursday, up

from 26 on Wednesday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.4509% on

Friday from 2.5047% on Thursday; Overnight average decreased to 1.9015% from

2.0269% on Thursday: Wind Information.

     YUAN: The yuan opened at 6.6480 against the U.S. dollar on Friday, softer

than yesterday's official close of 6.6372 and also weaker than today's central

parity rate of 6.6336 set by the PBOC.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.5250%, up from the previous close of 3.4950%, according to Wind Information.

     STOCKS: The Shanghai Composite Index fell below 2700 at one point this

morning before U.S. tariffs on China took effect. But it bounced back in the

afternoon and closed 0.49% higher at 2747.23. Hong Kong's Hang Seng Index rose

0.48% to 28318.37.

     FROM THE PRESS: As $34 billion in tariffs take effect, the U.S. is opening

fire not only on targeted countries, but also on itself, said Financial News,

citing Guo Shuqing -- chairman of the China Banking and Insurance Regulatory

Commission. China's foreign trade does not fully rely on one country; the U.S.

tariffs will hit both Chinese and foreign enterprises, including American ones,

Guo stressed. Gou also stated that escalating trade tensions will not spur

further yuan depreciation, as the Chinese economy has strong fundamentals. China

will maintain current trends and continue to reform and further open up the

economy, Guo asserted.

     Foreign investors increased their holdings of Chinese bonds for a 16th

consecutive month in June to a total of almost CNY1.3 trillion, reported China

Securities Daily. More foreign investment will enter the Chinese market in the

long term after Chinese bonds are added to the Bloomberg Barclays Global

Aggregate Index in 2019, the Daily said. In the second half of the year the bond

market will still be attractive to foreign investors despite the yuan's

fluctuations, especially to investors focused on global asset allocation,

according to the Daily.

     China's economy should transform from "high speed" to "high quality,"

reported the 21st Century Business Herald, citing Yang Weimin, deputy head of

the Office of the Central Commission for Financial and Economic Affairs.

Liquidity injections will not flow into the real economy without innovation, he

noted. Yang proposed a form of property rights reform which would put less

emphasis on ownership rights and more on intellectual property rights, according

to the newspaper. The government should build a motivation mechanism and give

enterprises autonomy to bring in foreign talent, Yang added.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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