MNI China Daily Summary: Monday, July 13

     EXCLUSIVE:A move by China to authorise the creation of real estate

investment trusts to securitise public infrastructure projects and ease the

financial burden of heavily-indebted local governments may need to be

accompanied by tax breaks if is to be successful in creating a new asset class

which could one day be worth as much as CNY10 trillion, a leading researcher for

the country's top government body told MNI. Securitising existing infrastructure

would lower debt levels now approaching 80% of revenues at some local

governments and their financing vehicles, allowing them to channel more

resources into the high-tech projects such as 5G stations and data centres now

becoming a national priority, said Meng Xiaosu, who leads REITs research at the

Development Research Center of the State Council.

     EXCLUSIVE: Chinese policy advisors and forex experts expect the yuan to

remain on the weaker side of 7 to the dollar for most of the rest of the year,

despite recent strength during an equity market surge, though they anticipate

volatile two-way trading as global uncertainties weigh against capital inflows

and China's economic recovery, they told MNI. The People's Bank of China is

becoming more tolerant of forex fluctuations as the economy moves towards

liberalisation, said Tang Min, a counsellor at the State Council, noting also

that the cost of controlling the exchange rate is increasing. But the PBOC could

step in both in the case of excessive capital inflows or of too steep a yuan

sell-off if tensions flare between China and the U.S., he said.

     EXCLUSIVE: China's economy is set to grow by around 2% in 2020, rebounding

from Q1's Covid-19 downturn but disappointing the expectations of only a month

ago as the pandemic spreads around the globe, policy advisors told MNI, adding

that the recovery may need to continue to be supported by monetary and fiscal

stimulus into 2021. Q2 growth, to be published next Thursday, is expected to

come in between 1 and 2%, said Zhu Baoliang, chief economist of the State

Information Center, a think tank linked to the National Development and Reform

Commission, China's top economic planning body. Growth should register 5% and 6%

in Q3 and Q4 respectively, seeing GDP print at about 2% for the year, he said.

     POLICY: The PBOC has begun to withdraw special easing facilities aimed at

supporting the economy through the Covid-19 pandemic, central bank officials

told reporters in a briefing on Friday, adding that it will signal a moderate

and flexible stance as growth recovers in the second half. Temporary easing

facilities, including relending, rediscounting and excess liquidity injection,

will be retired as financial markets normalise and countercyclical moves

function effectively, said Guo Kai, deputy director of the PBOC monetary policy

department. Stimulus implementing in the first half totals about CNY9 trillion,

he said.

     LIQUIDITY: The PBOC injected CNY50 billion via 7-day reverse repos with

rates unchanged at 2.2% and no reverse repos matured today, according to Wind

Information. The operations aim to maintain the liquidity in banking system at a

reasonable and ample level, the PBOC said on its website.

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

institutions (DR007) fell to 2.1931% from Friday's close of 2.2074%, Wind

Information showed. The overnight repo average declined to 2.0979% from the

previous 2.1665%.

     YUAN: The currency strengthened to 7.0031 against the dollar from 7.00071

on last Friday. PBOC set the dollar-yuan central parity rate higher at 6.9965,

compared with the 6.9943 set last Friday.

     BONDS: The yield on 10-year China Government Bond was last at 3.0050%, down

from the close of 3.0275% on Friday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index rose 1.77% to 3443.29. Hang Seng Index

edged up 0.17% to 25,772.13.

     FROM THE PRESS: The monetary policy of China's central bank will focus more

on moderateness, while structural policies will be the optimal choice to support

small firms and stabilise employment, PBOC-affiliated media Financial News said

in a commentary. Overall easing cannot by itself support companies and save

jobs, though the PBOC will continue to push for lower actual interest rates on

loans and company financing costs in H2, the commentary said.

     China should step up imports from neighbouring countries as a way to

increase the acceptance of the Chinese yuan in Asia and Europe, Economic

Information Daily commented. China needs to take action to reshape the global

industrial chain after the hit of Covid-19 and shorten supply chain while

focusing more on its own region, it said. The country also needs to change its

status from the world's factory to a major base of global consumption, the

newspaper added.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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