MNI China Daily Summary: Monday, July 8

     POLICY: China should increase the yuan's flexibility to better cushion

against the shifting policy stances of major central banks, Huang Yiping, a

former member of the Monetary Policy Committee at the People's Bank of China

(PBOC), told MNI in an interview, although he admitted their current dovishness

would allow additional room for the PBOC to ease policy if needed. "Markets

expect that the Fed may cut rates twice this year. If so, it would relax

pressure on the yuan and monetary policy of the PBOC, which would be good news

in the short term," said Huang, now deputy dean of the National School of

Development at Peking University. Huang also noted yuan flexibility would help

if global central bank polices turned less accommodative, pointing to currency

problems faced by the likes of Turkey in recent years as many leading economies

floated the normalisation of QE, problems from which China should take lessons.

     POLICY: China should remove obstacles for foreign firms in its financial

sector, creating a genuine level playing field for all, any opening-up should be

orderly, particularly when it involves lifting controls on the capital account,

Huang Yiping,a former member of PBOC's MPC, told MNI in an interview. The urgent

need for the opening-up of the sector is obvious, as allowing in greater foreign

capital and expertise will boost efficiency, said Huang, now deputy dean of

National School of Development at Peking University. It would also help in

ongoing trade talks with the U.S., as reform could help improve relations with

trading partners, he said.

     DATA: China's FX reserves in June rose for a second month, gaining $18.2

billion from May to $3.1192 trillion, according to data released by the State

Administration of Foreign Exchange (SAFE). The slight increase was mainly due to

the declining U.S. dollar index and rising asset prices amid global trade

tensions and changes in some major countries' monetary policies, SAFE said.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for an 11th

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

according to Wind Information. Total liquidity in the banking system is at a

relatively high level, according to the PBOC.

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

institutions (DR007) rose to 2.3995% from Friday's close of 2.1709%, Wind

Information showed. The overnight repo average increased to 1.4394% from

Friday's 1.0580%.

     YUAN: The yuan weakened to 6.8790 from Friday's close of 6.8781. The PBOC

set the dollar-yuan central parity rate weaker today, at 6.8881, compared with

6.8697 set last Friday.

     BONDS: The yield on the 10-year China Government Bond was last at 3.1800%,

up from Friday's close of 3.1700%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index dropped 2.58% to 2,933.36.

Hong Kong's Hang Seng Index decreased 1.54% to 28,331.69.

     FROM THE PRESS: Boosting investment will be the key to countering external

challenges and underpinning growth, the People's Daily said on its front-page.

There is still plenty of room for investment growth, but it requires selecting

key projects and expanding funding sources, the newspaper said. There is no need

for a fresh round of strong stimulus, as long as the government adopts the right

measures, the newspaper reported, citing Wang Yuanhong, deputy director of

economic forecasting at the State Information Center.

     China Banking and Insurance Regulatory Commission has issued warnings to

some trust companies with rapidly growing real estate business, ordering them to

follow the principle that "housing is for living, not for speculating", the

Securities Daily said on its front-page. By the end of May, the balance of real

estate trust assets was CNY3.15 trillion, up 15.5% y/y from the start of the

year, the paper said. Regulators are concerned about the rapid growth and

compliance issues, the newspaper reported, citing an unnamed CBIRC official.

     Several provinces including Jiangsu, Shanghai, Shandong, Guangdong and

Zhejiang are due to release new plans to upgrade national-level Economic and

Technological Development Zones as soon as mid-July, the Economic Information

Daily report today. Building a modern industrial system will be the focus of the

reform, as well as fostering strategic emerging industries and high-tech

projects, the paper said.

     The National Interbank Funding Center criticized Ping An Bank and China

Merchants Bank on Saturday for their "abnormal" transactions that charged

overnight repo rate (DR001) as low as 0.09%, according to a statement on its

website. The two banks said the errors resulted from mistakes made by traders,

who had their qualifications suspended for one year, according to the statement.

--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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