MNI China Daily Summary: Monday, May 13

     TOP NEWS: The yuan fell to four-month low in onshore trade after the latest

escalation in the China-U.S. trade war, losing more than 600 bps to 6.8721 at

4:30 pm local time, compared with the close of 6.8118 on Friday. The yuan in the

offshore market also dipped below the 6.9 level at 3:00 pm local time, the

lowest since December 2018, according to Wind Information. The central bank set

the dollar-yuan central parity rate at 6.7954 today, higher than the 6.7912 set

last Friday.

     POLICY: China's state media attempted to shore up public support for the

government's approach to the trade war by appealing to nationalism and blasted

the U.S. for raising tariffs and escalating tensions. Washington's apparent

belief that China wouldn't be able to withstand the tariff hikes is a

misjudgment and a self-deception, said Global Times in an editorial today. It is

"19th century mindset" to treat China as the old China that allowed itself to be

butchered by others at will, the official Xinhua News Agency said in a

commentary. 

     LIQUIDITY: The People's Bank of China skipped open market operations for

the third trading day, resulting in a net drain of CNY20 billion with the same

amount of reverse repos maturing, according to Wind Information.

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

institutions (DR007) fell to 2.4500% from the close of 2.4788% on Friday, Wind

data showed. The overnight repo average rose to 2.1500% from 1.8249% on Friday.

     BONDS: The yield on the 10-year China Government Bond (CGB) was last at

3.2650%, down from the close of 3.3050% on Friday, according to Wind

Information.

     STOCK: The benchmark Shanghai Composite Index fell 1.21% to 2903.71, with

finance and real estate shares taking losses, Wind Information said. Hong Kong

market is closed for the Birthday of Buddha Holiday.

     FROM THE PRESS: Volatile Sino-U.S. economic and trade relations have a

limited impact on the Chinese economy because domestic demand has become the

main driver of economic growth, the People's Daily said. Consumption had

contributed 76.2% to China's growth last year and the impact of the trade

frictions is generally controllable, the daily added.

     U.S. retailers, manufacturers and consumers have had to pay 90% of the

additional tariffs that the U.S government has put on Chinese exports since

August 2018, Xinhua News Agency reported citing research by the Institute of

World Economics and Politics. The Xinhua report also quoted a MOFCOM think tank

which claimed that in the latest tariff hikes covering a total of 6081 items

valued at $200 billion, there are 1150 items for which the U.S. relies on China

for more than 50% of its imports. Only 124 of the items for which Chinese

exports to the U.S. account for more than 50% of total. The U.S. is more reliant

on Chinese goods and raising tariffs will push domestic U.S. prices higher,

Xinhua said

     The PBOC is more likely to lower the reserve requirement ratios (RRR) for

medium-sized commercial banks if it is to use RRR cut to hedge internal and

external risks in the future, said Ming Ming, chief analyst at CITIC Securities.

Faced with increasing uncertainty, monetary policy is unlikely to be loosened

significantly but there is room for targeted and marginal loosening, Ming said.

--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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