MNI China Daily Summary: Monday, July 9

     TOP NEWS: China has already studied and started to prepare for potentially

"extreme" scenarios in its developing trade war with the U.S., including

President Donald Trump's threat to eventually expand the value of Chinese goods

subject to U.S. tariffs to $550bn, a researcher at the Chinese Academy of

International Trade and Economic Cooperation under China's Ministry of Commerce

told MNI in an interview.

     TOP NEWS: The CFETS Weekly RMB Index, which measures the yuan relative to a

basket of 24 currencies, fell by 0.62% last Friday from the previous week to

95.07, the lowest since the week of Jan 12 this year. It has dropped for a third

consecutive week since June 22.

     DATA: China's foreign exchange reserves increased modestly in June, the

first rise after two consecutive monthly falls, as prices of U.S. treasuries

rose, according to the People's Bank of China (PBOC) and State Administration of

Forex Reserves (SAFE). FX reserves rose by USD1.51 billion to USD3.112 trillion

as of June 30, according to data released by the PBOC, compared with a decline

of USD14.23 billion in May.

     YUAN: The yuan continues to mount a recovery against the U.S. dollar. The

yuan's recovery is being supported by broad-based dollar weakness, which has

meant the yuan continues to underperform most major EM and DM currencies, with

the yuan's trade-weighted index edging lower. The greenback's broad-based

weakness is positive for further S-T yuan gains.

     LIQUIDITY: The People's Bank of China (PBOC) skipped its open market

operations on Monday, stating on its website that a relatively high level of

liquidity can absorb maturing reverse repos. There is no reverse repos matured

today, according to the PBOC. CFETS-ICAP's money-market sentiment index closed

at 32 on Friday, up from 28 on Thursday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.5709% on

Monday from 2.4458% on Friday; Overnight average increased to 1.9503% from

1.8846% on Friday: Wind Information. 

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

3.5400%, up from the previous close of 3.5250%, according to Wind Information.

     STOCKS: Shares in Shanghai are having a relief rally after continuous falls

last week. Shanghai Composite Index regained the 2800 mark, closing 2.47% higher

at 2815.11. Equity market lows have shown a tendency in recent years to

correspond with lows in rates, and with the yuan also rallying, the rate markets

appear next in line to mount a short-term recovery, especially given the major

decline in China's yield advantage relative to the US since the start of the

year. Hong Kong's Hang Seng Index rose 1.68% to 28792.35.

     FROM THE PRESS: The key force behind escalating trade tension between the

U.S. and China is in their competition in technology innovation, especially from

China's "China 2025" campaign, reported Financial News. Despite some negative

effects of the trade war on China's high-tech industry, the crisis could become

an opportunity to stimulate innovation and achieve high-quality development of

the high-tech sector, said Dong Ximiao, executive director of the research

institute of Heng Feng Bank, according to the newspaper. China will strengthen

independent innovation and promote industrial upgrading in the next step, said

Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission,

according to the newspaper.

     China will enhance mechanisms to promote domestic consumption and support

economic development, said Chinese President Xi Jinping, as reported by Xinhua

News Agency. China should work from both the supply and demand sides to tailor

policies to residents' consumption trends and thereby increase national spending

power, Xi noted. China will next focus on cultivating the market segments of key

consumption areas and promoting reasonable consumer expectations, Xi added.

     Aggregate new lending in June may have reached CNY1.95 trillion, reported

China Securities Daily, citing experts. In response to the PBOC's steady and

slightly loose monetary policy, credit growth remained stable in June, with a

small growth from May, said Lian Ping, chief economist of Bank of

Communications, according to the Daily. Investment demands in manufacturing and

real economy were strong in the first five months, supporting a stable credit

growth. The transformation from off-balance sheet financing to in-balance sheet

lending further increases the resilience of credit, according to the Daily.

--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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