MNI China Daily Summary: Thursday, July 18

     POLICY: The yuan should remain stable in the second half of the year as

many global central banks have flagged an easing stance and the U.S./China rate

differential has widened, Wang Chunying, the spokeswoman for the State

Administration of Foreign Exchange (SAFE) told reporters today. The impact from

the trade conflicts with the U.S. on cross-border capital flows is under

control, Wang said. Cross-border capital flows will settle at a normal level for

the rest of the year, although there are still some uncertainties including

global-wide trade protectionism, Wang said. The yuan is supported by factors

including the further opening up of China's financial markets, more rational

expectation on the yuan's two-way movement and better capital flow management,

she said.

     DATA: Chinese banks sold net CNY131.4 billion equivalent foreign exchange

on behalf of clients, reversing the net purchase of CNY31.8 billion FX in May,

data released by the SAFE today showed. Greater net sales correspond to larger

FX outflow.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY100 billion via

7-day reverse repos today, adding liquidity for the third day. This resulted in

a net injection of CNY100 billion as no reverse repos matured, according to Wind

Information. The injection aims to offset the impact of government bond

issuance, the PBOC said. The reverse repo rate was kept unchanged at 2.55%,

according to the PBOC.

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

institutions (DR007) rose to 2.8056% from Wednesday's close of 2.7655%, Wind

Information showed. The overnight repo average increased to 2.7957% from

Wednesday's 2.7303%.

     YUAN: The yuan strengthened to 6.8750 against the dollar from Wednesday's

close of 6.8795. The PBOC set the dollar-yuan central parity rate lower at

6.8761 today, compared with 6.8827 on Wednesday.

     BONDS: The yield on 10-year China Government Bond was last at 3.1575%, down

from the close of 3.1750 on Wednesday, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index fell 1.04% to 2,901.18. Hong

Kong's Hang Seng Index decreased 0.46% to 28,461.66.

     FROM THE PRESS: China is still looking for new growth momentum to stabilize

a slowdown with reduced demand for infrastructure and property investment which

had supported high-speed growth in the past, the Securities Times reported

citing Liu Shijin, a member of the PBOC's monetary policy committee. China's

growth began to slow in Q1, 2010, and bottom in Q3, 2016, then entering a phase

of medium speed growth, Liu was cited as saying. 

     Markets should not be too optimistic about the dovish policy of the U.S.

Federal Reserve and be prepared for less action on interest rates rather than

expecting deep cuts, according to a commentary in the China Securities Journal.

The dollar is holding up well with the U.S. dollar index fluctuating higher

since July, with rises in safe-haven golds and bonds lacking momentum, the

journal said. A rate cut by the U.S. could be "preemptive" and may not be as

deep as expected by the market, the newspaper said.

     The PBOC's shrinking balance sheet doesn't suggest that it is implementing

a tightening policy, the 21st Century Business Herald said in a commentary. The

shrinking balance sheet in H1 was mainly due to the decline in the balance of

structural monetary policy instruments such as the medium-term lending facility

and the pledged supplemental lending, which in turn had led to a decline in

asset size, the newspaper said. By end-June, the total assets of the PBOC were

at CNY36.4 trillion, a reduction of about CNY900 billion from the end of 2018,

the commentary 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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