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TOP NEWS: The People's Bank of China (PBOC) is increasing its effort to
court foreign investment into China's financial market on the growing prospect
that the country's current account and currency may be weakened by rising trade
protectionism, two sources close to the central bank told MNI. "A balanced
international payment is important to supporting the yuan. We can see the
currency is pressured by a rallying dollar now and the pressure could be greater
if the current account surplus keeps slipping, which is not something the PBOC
is happy to see," one source said. The sources commented after the country's
forex regulator said on Tuesday that it will grant greater latitude to
participants in the qualified foreign institutional investor program (QFII) to
move money out of the country, lifting a remittance ceiling and a three-month
LIQUIDITY: The PBOC injected CNY50 billion 7-day, CNY30 billion 14-day
reverse repos, and CNY20 billion 28-day reverse repos on Friday, netting in
CNY90 billion injection after the maturity of CNY10 billion reverse repos today.
The PBOC has injected a total of CNY240 billion by OMOs this week. CFETS-ICAP's
money-market sentiment index was unchanged at 36 on Thursday from Wednesday.
DATA: China average new home price of 70 Chinese major cities, excluding
subsidized units, accelerated in May both on a monthly and yearly basis. It grew
0.8% month-on-month, up from the 0.6% gain in April, MNI calculations show. The
year-over-year growth was 5.4%, higher than the 5.3% growth in April. The data
show the Chinese property market is heating up in May despite the government's
strict curbing attempts. More cities saw housing price increase m/m and y/y. 61
out of the 70 cities the NBS monitored saw m/m housing prices ticking up, more
than 58 in April. Compared with a year ago, 62 cities saw y/y price growth, up
from the 59 reported in April.
DATA: China's fiscal spending in May increased 0.5% from last year to
CNY1.70 trillion, compared with a 9.2% gain in the same period last year.
Spending by the central government increased 9.4% y/y in May to CNY298.1
billion, compared with a growth of 5.8% last year. Local government spending
declined 1.2% to CNY1.4 trillion, compared with a 9.8% rise in the same period
last year. The low growth in local government spending are mainly caused by
high-base last year. Total revenue gained 9.7% y/y to CNY1.76 trillion in May
from a year ago, compared with an increase of 3.7% in the same period of 2017.
DATA: The PBOC reported that forex purchase position rose for a fifth month
in May, reflecting supply and demand generally in balance. The PBOC's forex
purchase position in May rose by CNY9.144 billion m/m to CNY21.5117 trillion,
more than April's increase of CNY7.422 billion, according to a statement on the
central bank's website Thursday. The value of PBOC's forex reserves fell by
USD14.23 billion to USD3.11 trillion in May from the previous month due to
valuation effects, PBOC said separately on June 7.
***COMMENT: The rising U.S. dollar index places greater depreciation pressure on
the yuan. This may be helped by China's opening up of its financial market,
which draws capital inflow and shores up forex purchases and reserves.
ANALYSIS: China's major economic indicators for May failed to meet
expectations, with investment and consumer spending both posting sharp
slowdowns, casting a negative outlook for the second half of the year. As the
disappointing results could be partly attributed to lower credit growth and a
tighter funding environment, the poor economic data further raised the stakes
that monetary and credit policies need to be relaxed to avoid a further
slowdown. Lower retail sales growth was caused by holiday effects, as the Dragon
Boat Festival fell in May last year while this year it comes in June. That
shaved more than one percentage point off May's retail sales growth, said the
POLICY: ANZ note that "May's soft patch was mainly seen in retail sales and
investment. We expect (Chinese) GDP growth to slow to 6.7% y/y in Q2 from 6.8%
in Q1, followed by an average growth of 6.3% in H2. There are some positive
signs in the economy, which prevent us from being overly pessimistic about the
economic outlook. Notably, the manufacturing sector continued recovering and the
property market rebounded. An unexpected drop in May's total social financing
(TSF) reflects an easing in the shadow banking sector. This is a clear sign of
MONEY MARKET RATES: 7-day repo average dropped to 2.7602% from 2.8474%
Friday, after the PBOC injected CNY90 billion via OMO. The overnight repo
average decreased to 2.5687% from Thursday's 2.5706%.
YUAN: The yuan dropped to 6.4158 against the U.S. dollar from Thursday's
closing of 6.3923. Earlier today, the PBOC set the central parity rate higher at
6.4360, weaker than Thursday's 6.3962. Today's 0.54% loss was the biggest since
BONDS: The yield on benchmark 10-year China Government Bond was last at
3.6100%, down from the previous close of 3.6325%, according to Wind Information.
STOCKS: Shares declined in Shanghai, led lower by ferrous metal mining
companies, with Hainan Mining Co. down by close to 5.62%. The benchmark Shanghai
Composite Index closed 0.73% lower at 3021.90. Hong Kong's Hang Seng Index
lowered at 0.09% to 30415.07.
FROM THE PRESS: Chinese authorities will further open up a few
non-convertible items related to its capital account and liberalize trading of
convertible items, said Pan Gongsheng, head of the State Administration of
Foreign Exchange, according to Shanghai Securities News. China should adhere to
certain principles when improving the exchange rate formation mechanism,
including increasing the market's role in determining the exchange rate,
enhancing transparency and flexibility of the yuan, maintaining basic stability
of the yuan exchange rate and further opening up the FX market to foreign
Policy curbs on the property market should remain tight, China Securities
Journal said in a front-page commentary. Thursday's official data indicated
housing prices increased and that a bubble still exists in some popular cities,
showing the need for stronger policies, the newspaper said. The property sector
is heating up, especially in the middle and western parts of the country, it
said. Previous measures, such as placing home purchasing quotas and extending
the wait time for the resale of a house, are expected to continue. New controls,
such as using a lottery to decide buyers or regulators' direct orders towards
certain cities, will be extended to other cities, it said.
China maintains its own principles and leverage and the U.S. should not be
antagonistic amid significant changes in North Korean denuclearization, trade
and other national security issues, Global Times said in a commentary. The U.S.
should focus on resolving conflicts of the two countries, instead of acting only
on self interest, it said.
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