MNI China Daily Summary: Monday, July 15

     POLICY: The People's Bank of China (PBOC) will hold back on further easing

and continue with unconventional operations to boost the economy, waiting for a

clear signal from the U.S. Federal Reserve that its has moved into a rate-cut

cycle, Zhu Ning, a professor at the PBC School of Finance at Tsinghua

University, told MNI in an interview. The PBOC will keep its modest loosening

bias, but the space for further easing or benchmark rate cuts is limited unless

the Fed sends a clear signal of a new easing cycle. Instead, the central bank

will continue to use unconventional tools, including reserve requirement ratio

cuts and the medium-term lending facility, to fight economic headwinds for now,

said Zhu.

     POLICY: China's economy will face greater headwinds in the second half of

the year, as exports and the property sector lose steam and uncertainty over

trade talks persists, Zhu Ning, one of the country's leading economists told MNI

in an interview. "Infrastructure investment and domestic consumption will be the

major drivers," said Zhu, adding that authorities will be keen to enable the

growing middle class to generate consumer-led growth, rather than pushing

debt-fuelled government-backed investment.

     DATA: China's economy decelerated to 6.2% y/y in the second quarter from

6.4% in Q1, lower than 6.3% projected by an MNI survey, data released by the

National Bureau of Statistics (NBS) showed. It was the slowest since at least

1992 according to available official record. Retail sales soared to 9.8% y/y in

June, after growing 8.6% in May from April's 16-year low of 7.2%. It surpassed

the 8.3% forecast in the MNI survey and reached the highest level since March

2018. Fixed-asset investment rose 5.8% y/y in Jan-June, beating 5.5% MNI

forecast and 5.6% in the first five months. Industrial output growth accelerated

to 6.3% y/y in June, up from May's 5.0%, beating 5.2% MNI projection.

     DATA: The average price of new homes in 70 major cities, excluding

subsidized units, slowed for a second month to 10.8% y/y in June from the

previous 11.3% y/y growth, marking the smallest increase so far this year, data

released by the NBS showed. On a m/m basis, the average price was up 0.7% in

June, unchanged from May.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 16th

straight day today, leaving liquidity unchanged as no reverse repos matured,

according to Wind Information. The PBOC injected a total of CNY200 billion

through the medium-term lending facility (MLF) today, CNY11.5 billion more than

the MLF that matured today. The injection is to offset the maturity of CNY188.5

billion of MLF in addition to the impact of the tax season, according to a

statement on the PBOC website.

     Today's operations also took account of CNY100 billion addition in

long-term funds resulting from the second phase of a previously announced RRR

cut for rural banks and cooperatives, with the first phase conducted on May 15,

said the PBOC.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.6633% from Friday's close of 2.4925%, Wind

Information showed. The overnight repo average increased to 2.6165% from

Friday's 2.2375%.

     YUAN: The yuan strengthened to 6.8758 from Friday's close of 6.8783. The

PBOC set the dollar-yuan central parity rate weaker at 6.8677, compared with

6.8662 last Friday.

     BONDS: The yield on the 10-year China Government Bond was last at 3.1780%,

up from Friday's close of 3.1500%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index rose 0.40% to 2,942.19. Hong

Kong's Hang Seng Index increased 0.29% to 28,554.88.

     FROM THE PRESS: The PBOC is expected to resume open market operations after

a suspension of 15 days as it aims to offset the maturity of CNY220 billion in

28-day reverse repos this week, according to a report in the Economic

Information Daily. Citing Wen Bin, the chief analyst at Minsheng Bank, the Daily

said the PBOC may renew the matured MLF and inject funds through Targeted

Medium-term Lending Facility (TMLF) three times this year to fill in liquidity.

     More cities in China should come up with new ideas such as developing a

night life to boost consumption, the People's Daily said in a commentary today.

Developing a "night economy" helps drive consumption despite putting higher

demand on urban infrastructure, such as public transport, and create noise and

pollution, the newspaper said.

     China's property developers may face a tightening financial environment in

the second half and some may face a liquidity crisis, the 21st Century Business

Herald reported citing industry analysts. Real estate financing costs overseas

had increased since July, with the average interest rate rising to around 8%,

the newspaper said. Developers are likely to be more conservative about land

acquisition in the short term as home sales cooled and financing gets more

difficult, the herald said citing Yan Yuejin, the director of the E-House Real

Estate Research Institute. 

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

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

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