MNI China Daily Summary: Friday, June 22

     TOP NEWS: Chinese trade officials have quietly approached their U.S.

counterparts seeking ways to minimize punitive tariffs on Chinese exports and

avoid a full-blown trade war, MNI learned from a source with knowledge of the

matter. Both China and the U.S. are making last-minute efforts to avert the

implementations of tariffs. Talks are still preliminary, the source said. Other

trade advisors and researchers for the Chinese government told MNI that both

China and the U.S. are under pressure to reach a compromise, a mutual agreement

is expected to end the trade row though most of them said it may come in months.

     POLICY: USDCNH is testing yesterday's highs, currently at 6.1522, as it

competes for the worst performing Asian currency this week along with the

Taiwanese dollar and Indonesian rupiah, with a loss of 0.9% at the time of

writing. The firm break higher in USDTWD, which broke above resistance at 30.00

on Monday and continues to trade higher, is a bearish sign for the yuan, given

the close links between the two currencies and economies and currencies. 

     LIQUIDITY: The People's Bank of China injected CNY40 billion via its 7-day

reverse repos and CNY30 billion via its 14-day reverse repos on Friday,

resulting in a net injection of CNY20 billion as a total of CNY50 billion

reverse repos matured today, according to Wind Information. The PBOC has

injected a net of CNY340 billion via its reverse repos and medium-term lending

facilities (MLF) loans this week. CFETS-ICAP's money-market sentiment index

closed at 36 on Thursday, down from 43 on Wednesday.

     MONEY MARKET RATES: The benchmark 7-day deposit repo average fell to

2.7174% on Friday from 2.7660% on Thursday; Overnight average fell to 2.5616%

from 2.5650% on Thursday: Wind Information.

     YUAN: The yuan weakened to 6.4929 against the U.S. dollar on Friday from

Thursday's 6.4917 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.4804, weaker than Thursday's 6.4706. The central

bank has set the fixing weaker for three trading days out of four this week,

with the drop accumulating to 0.88%. 

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

3.2650%, down from the previous close of 3.2700%, according to Wind Information.

     STOCKS: Shares rebound slightly in Shanghai after continuous falls in the

past week. Shanghai Composite Index closed 13.95 higher at 2889.76. Hong Kong's

Hang Seng Index rose 0.15% to 29339.88.

     FROM THE PRESS: Chinese President Xi Jinping said protectionism and

unilateralism should be avoided as globalization becomes an irreversible trend,

according to the official Xinhua News Agency. All countries should not stop

opening to each other, should seek quality growth and cooperation, Xi said.

China's high-quality development will also advance as it further opens up, Xi

said. China will continue to significantly expand market access for foreign

investors, improve its investment environment, enhance protection of

intellectual property, and increase imports, Xi said.

     Despite the recent depreciation of the yuan, the currency is expected to

maintain an "orderly and mild status", Financial News, a newspaper of the

People's Bank of China said. As the dollar rose due to strong economic growth in

the U.S., the hawkish stance of the Fed and drop in the euro, and uncertainties

surrounding trade conflicts, the yuan has faced downward pressure, the newspaper

said. But China's FX market's demand-supply dynamics and market expectation are

basically stable, and the yuan exchange rate should not experience big

fluctuations, the newspaper said. The yuan's outlook will depend on China's

economic fundamentals, Guan Tao, former official of the State Administration of

Foreign Exchange, was quoted as saying.

     China should stick to deleveraging and structural reforms, Economic

Information Daily, a newspaper managed by the Xinhua News Agency, said in a

front-page commentary. China should not change its policy direction due to

recent bond defaults or fluctuations in the stock market and asset prices as

some people suggest, the commentary said. Such fluctuations resulted from the

country's deleveraging and strict financial regulation, and China's economy is

resilient enough to tackle the challenges, the newspaper said. The financial

sector should be ready for "bitter days," a switch from its previous rampant

expansion and overleveraging, it said, adding China will not loosen monetary

policy to add liquidity into the market to a large degree.

     China's foreign trade is transforming from high quantity to high quality,

said Liang Ming, director of the institute of international trade at the Chinese

Academy of International Trade and Economic Cooperation, reported by People's

Daily. The quality, structure and efficiency of China's foreign trade will

improve by the end of the year, Liang predicted. China needs to push trade

liberalization and facilitation and protect trade multilateralism in the next

step, Liang told the newspaper. In addition to stabilizing exports and expanding

imports, the country should increase imports of some products and facilitate

balanced foreign trade development, Liang added.

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

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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