MNI China Daily Summary: Friday, June 29

     TOP NEWS: The Chinese authorities appear to be showing concern over a

further collapse in the yuan, with Shanghai Securities reporting today that

China will remove restrictions on foreign investment in 22 sectors, starting

from July 28, 2018. This move may aim to appease the US ahead of potential

tariff increases as well as attract capital into the country amid an

increasingly vulnerable external position.

     TOP NEWS: Accusations of China stealing intellectual property and forcing

foreign companies to transfer technology are groundless, said Wang Shouwen,

deputy head of the Ministry of Commerce. Wang iterated China's support for

multilateral trade systems and disagreed that China's lack of IP protection led

to trade disputes with trading partners such as the U.S.

     YUAN: USDCNH has come off its highs as a combination of rising Chinese

stocks and broad-based dollar weakness has given the yuan some relief. With the

pair very overbought and signs of bearish RSI divergence in play, some the

relief rally in the yuan may have further to go.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY80 billion via its

7-day reverse on Friday, resulting in a net drain of CNY20 billion as a total of

CNY100 billion reverse repos matured today, according to a statement on the PBOC

website. The PBOC has drained a net of CNY370 billion via its reverse repos this

week. CFETS-ICAP's money-market sentiment index closed at 33 on Thursday, down

from 34 on Wednesday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 3.0161% on

Friday from 2.8892% on Thursday; Overnight average increased to 2.6639% from

2.1849% on Thursday: Wind Information.

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

3.1500%, down from the previous close of 3.2000%, according to Wind Information.

     STOCKS: After falling to two-year lows on Thursday, shares  in Shanghai

rebounded significantly after China eased foreign investment limits. Shanghai

Composite Index closed 2.17% higher at 2847.42, making a biggest gain within the

year. Hong Kong's Hang Seng Index rose 1.47% to 28915.69.

     FROM THE PRESS: The People's Bank of China (PBOC) will maintain its neutral

and prudent monetary policy, keeping liquidity at a reasonable and sufficient

level, said a statement from the PBOC's monetary policy committee, reported by

Financial News, a newspaper of the PBOC. The PBOC promises to closely monitor

both domestic and international economic trends, enhance its forecasting

capability and fine-tune its policies, noted the newspaper. Domestic demand is

becoming the main driving force of China's economy, while the country's

dependence on foreign trade has significantly weakened, said the newspaper.

China will use multiple monetary policy tools to control the pace and intensity

of structured deleveraging.

     Chinese Premier Li Keqiang called for deepening administrative reform,

optimization of government service and greater government efficiency to bolster

China's economy, reported by People's Daily. Local governments should decrease

direct allocation of resources and intervention in market activities as much as

possible, Li stressed. China will significantly cut the time for opening an

enterprise, obtaining construction project approval and customs clearance within

five years to boost the vitality of market, Li added.

     China will remove restrictions on foreign investment in 22 sectors,

especially in the service sector, infrastructure and automobile manufacturing,

starting from July 28, 2018, according to a joint statement of ministry of

commerce (MOFCOM) and National Development and Reform Commission (NDRC),

reported by Shanghai Securities. All restrictions on foreign equity limits in

the financial sector will be removed by 2021, noted the newspaper. China will

also widen market access to agricultural products and energy resources. These

major opening-up measures will attract more foreign investment, promote

competition and inject vitality to the market, said an anonymous manager of

NDRC, according to the newspaper.

     CHINA MONEY WEEK: Sell China has been a major theme in global markets over

recent weeks, with USDCNH rising almost 4% from over the past two weeks since we

turned bearish on the yuan and local stocks down 5-10%, depending on the index.

Following such steep losses, and with sentiment turning increasingly bearish on

both stocks and the yuan, the recent bounce looks like it may have legs.

     In the case of Chinese financials, which dominate the Hang Seng and the

Hang Seng China Enterprises Index, the recent sell-off has seen valuations

improve further, with the HSCEI now offering a 4.4% dividend yield -- among the

highest of any major market globally. The index has also fallen back below book

value (currently at 0.96) and trades at a P/E ratio of just 8.4.

     --RIGHT NOISES

     There has been some positive news out of China this week which should

provide some fundamental support to Chinese assets. As MNI noted Friday in its

Press Digest, China will remove restrictions on foreign investment in 22

sectors, especially in the service sector, infrastructure and automobile

manufacturing, starting from July 28, 2018, according to a joint statement

MOFCOM and NDRC. Furthermore, all restrictions on foreign equity limits in the

financial sector will be removed by 2021, according to Shanghai Securities.

     --STREAMLINING

     In addition, Chinese Premier Li Keqiang called for a deepening of

administrative reform, optimization of government services and greater

government efficiency to bolster the economy, reported the People's Daily. Local

governments should decrease direct allocation of resources and intervention in

market activities as much as possible, Li stressed. China will significantly cut

the time for opening an enterprise, obtaining construction project approval and

customs clearance within five years to boost the vitality of market, Li added.

     Such reforms are exactly what China's economy needs to help it navigate its

deleveraging cycle and avoid a major hit to growth and the currency. The news

may provide an additional benefit in that it could reduce pressure from the U.S.

if Beijing opens up its market more to foreign investment. While it is early

days yet, Chinese assets are showing some signs of potential following a

dreadful two-week run.

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

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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