**MNI China Daily Summary: Monday, June 25

     **TOP NEWS: China's decision to cut its Required Reserve Ratio (RRR) for

some banks by 0.5% effective July 5 reflects an increasingly easy policy bias by

the People's Bank of China (PBOC). The move is expected to unlock 700 billion

yuan in liquidity with the aim of supporting small and micro enterprises and

further promoting the debt-to-equity swap program. The cut will apply to major

state-run commercial banks, joint-stock commercial lenders, postal banks, city

commercial lenders, rural banks and foreign banks. 

     TOP NEWS: The yuan opened at 6.5200 against the U.S. dollar Monday, weaker

than Friday's official close of 6.4964, and also weaker than today's central

parity rate of 6.4893 set by the PBOC. The yuan is clearly trending weaker which

is likely exactly what the PBOC wants amid the increasing threat of a trade war.

The next level of support for the pair comes in at the congestions zone around

6.60, and it looks as though this level could be hit in the near term.

     LIQUIDITY: The PBOC skipped its open market operations on Monday, resulting

in a net drain of CNY10 billion as a total of CNY10 billion reverse repos

matured today, according to a statement on the PBOC website. The PBOC cut RRR to

release CNY700 billion in a sign that policy is becoming increasingly tilted

towards supporting the economy rather than encouraging deleveraging.

CFETS-ICAP's money-market sentiment index closed at 33 on Friday, down from 36

on Thursday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.7953 on

Monday from 2.7260% on Friday; Overnight average decreased to 2.5372% from

2.5455% on Friday: Wind Information.

     YUAN: The yuan weakened to 6.5200 against the U.S. dollar on Monday from

Thursday's 6.4944 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.4893 on Monday, weaker than last Friday's 6.4804.

The PBOC has set the fixing weaker for four trading days in a row.

     YUAN: The PBOC's trade-weighted yuan had the biggest drop since February

last week, according to data released by the People's Bank of China. The CFETS

Weekly RMB Index, which measures the yuan relative to a basket of 24 currencies,

fell by 0.48% on June 22 from the previous week to 97.38. The drop was the

biggest since the 0.83% decrease in the week of Feb 14 this year. As of last

Friday, the RMB gauge has recorded a 2.67% gain year-to-date, up from 94.85 on

Dec 29, according to MNI's calculations.

     BONDS: The yield on benchmark 10-year China Government Bond remained

unchanged from the previous close of 3.2600%, according to Wind Information.

     STOCKS: Shares in Shanghai dropped to the lowest in the past two years.

Shanghai Composite Index closed 1.05% lower at 2859.34 as investors' pessimism

defeated positive news brought by the PBOC's RRR cut during the weekend. Today

saw the fifth straight day when the Shanghai stock close was below 3,000. ZTE

stocks declined by the daily limit of 10% as the China-EU trade tension continue

to weigh on the Chinese tech company. Hong Kong's Hang Seng Index fell 1.23% to

28978.59. 

     FROM THE PRESS: China is expected to report better-than-expected gross

domestic product (GDP) growth this year at 6.7% or 6.8%, according to economists

affiliated with various government think tanks, reported Shanghai Securities

News. These expectations are comparable to the 6.5% GDP goal set by China for

this year. The momentum for economic growth is strong, as indicated by

accelerated growth of private investment and manufacturing investment, said Wang

Yiming, deputy director of Development Research Center of the State Council.

Consumption for the whole year should maintain stable gains at 9.5%, and exports

should grow at a two-digit growth rate, Renming University has predicted. The

government needs to make its fiscal policy more provocative, maintain its

prudent and neutral monetary policy, and further cut taxes; but RRR may be cut

based on real conditions, the economists said, according to the newspaper.

     The PBOC may continue to cut banks' reserve requirement ratio (RRR) one to

two times this year, after its Sunday RRR cut unleashed around CNY700 billion

liquidity, reported Economic Information Daily on Monday, citing analysts.

China's RRR is still high compared with other countries, and liquidity needs to

be increased in the second half of this year, so another 50-100BP RRR cut could

come in the rest of the year, said Ming Ming, chief fixed-income analyst at

Citic Securities. China-U.S. trade tensions could mean China is feeling pressure

to devaluate the yuan, which could drop to 6.6; thus an RRR cut may be used to

unleash more liquidity into the market to counter potential risks, said Li Chao,

chief analyst of Huatai Securities.

     The most important risk to control is preventing asset bubbles as China

further opens up to the rest of the world, said Fang Xinghai, deputy chairman of

China's securities regulator, in an interview with China Business News. The

China Securities Regulatory Commission (CSRC) needs to strengthen cross-border

financial regulation with other countries, Fang said. Property market growth is

still one of the main drivers of China's economic growth, but the needs of the

property market are diversifying, Fang said. China's outbound investment will

continue to increase as the country has a high savings rate, and investing

globally could reduce exchange rate and political risks, Fang noted.

***Comments: As Fang indicated in the interview, China could support property

growth in some way this year to hit the target for GDP growth.

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

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

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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