MNI China Daily Summary: Monday, July 16

     TOP NEWS: China and the EU vowed to resist protectionism and unilateralism

in a joint statement sent to MNI. Amid rising global trade tensions, the two

sides did not refer directly to Washington's recent actions, but said they are

committed to improving trade and investment liberalization and facilitation, and

support globalization.

     TOP NEWS: China is poised to increase fiscal spending and carry out further

tax cuts to boost the economy and counter the impact of the unprecedented trade

wrangle with the U.S., Wang Zecai, a research official with the Ministry of

Finance told MNI in an interview. "We will enhance our proactive fiscal policies

to support infrastructure investment in the second half of this year," said

Wang.

     TOP NEWS: The US and China should stay rational and calm to cooperate on

services, cross-border e-commerce, energy and infrastructure, as well as to

solve current trade tensions, Wang Huiyao, President of the Center for China and

Globalization (CCG) and Counsellor for the State Council, said in an article

emailed to MNI.

     DATA: China's National Bureau of Statistics released Chinese Q2 GDP today.

Industrial output growth was the biggest disappointment, slowing to 6.0% y/y in

June, lower than the 6.5% projected in a survey by MNI and the 6.8% recorded in

May. Q2 GDP growth was 6.7% y/y, in line with expectations, down from 6.8% in Q1

and the slowest pace recorded since Q3 2016 (when growth also registered at

6.7%).

     YUAN: USDCNH is testing support at 6.7000 after failing to break resistance

at range highs earlier today. With the euro pushing higher, breaking above

1.1700, this will put appreciatory pressure on the yuan as the euro has a large

weight in the PBOC's yuan trading basket. A move below 6.7000 would give yuan

bulls some respite, while a break below 6.6680 would be needed to suggest a more

sustainable reversal pattern is in the works.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY170 billion via

its 7-day reverse repos and CNY130 billion via its 14-day reverse repos on

Monday, resulting in a net injection of CNY300 billion as no reverse repos

matured today, according to Wind Information. A total of CNY40 billion in

reverse repos will mature this week; CFETS-ICAP's money-market sentiment index

closed at 37 on Friday, remaining unchanged from Thursday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.6776% on

Monday from 2.6467% on Friday; Overnight average increased to 2.5427% from

2.4368% on Monday: Wind Information.

     YUAN: The yuan rose to 6.6877 against the U.S. dollar on Monday from

Friday's 6.6905 closing, despite today's weaker fixing. The PBOC set the yuan

central parity rate at 6.6758, weaker than last Friday's 6.6727.

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

3.4800%, up from the previous close of 3.4650%, according to Wind Information.

     STOCKS: Shares in Shanghai declined on Monday after data showed China's

economy slowed slightly in the second quarter, and as investors remain cautious

over the impact of the heated China-U.S. trade war. The Shanghai Composite Index

closed 0.61% lower at 2814.04. Hong Kong's Hang Seng Index fell 0.01% to

28522.60. ZTE's stocks outperformed, following the U.S. lifting the ban on the

company's operations after a $1.4bn fee was paid. The kitchen appliance

manufacturer and French football sponsor Vatti saw its shares rise 4.45% after

it promised to give a full refund if France won.

     FROM THE PRESS: China has started a new round of local government implicit

debt inspections, focusing on the cashflow and debt levels of PPP projects,

China Securities Journal reported. The enhanced regulation of implicit debt may

increase fiscal pressure on local governments, the newspaper said, citing Lian

Ping, Chief Economist at the Bank of Communications. The pace of issuing local

government debt is expected to rise significantly in the second half of the

year, reaching a total of CNY4 trillion by December, the newspaper said. In

addition to clearing implicit debts, China should promote the legalization and

liberalization of local government debt, the Daily said, citing experts.

     The excessively high macro deleveraging rate and downward pressure on

fixed-asset investment may weigh on China's economy in the second half of the

year, reported China Securities Journal, citing Wang Yiming, Deputy Director of

the Development Research Center of the State Council. Local governments should

expand financing channels for private enterprises and continue to invest in

projects in progress while controlling debt levels, Wang said. China's macro

policy will face greater challenges as the U.S. and the Eurozone's quantitative

easing policies gradually fade out, Wang said. However, these factors work as

both pressure and stimulus, pushing China to further open up, Wang added.

     The growth of fiscal revenue is expected to slow in the second half of the

year, but the annual goal can still be reached, the Economic Information Daily

reported, citing Lou Hong, Director of the Ministry of Finance's Treasury

Department. Further administrative reform will drive high-quality development

and support the growth of fiscal revenue, Lou said. However, uncertainties in

the international trade environment and tax and fees reduction policies may

still weigh on fiscal revenue growth, Lou added. The government will further

reduce taxes and implement other policies to improve the business environment,

the newspaper said.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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