MNI China Daily Summary: Thursday, July 2

     POLICY: China has allowed some of the proceeds from special purpose local

government bonds to recapitalize regional banks, so they can then beef up their

lending to support small firms and stabilize employment, a statement following

Wednesday's State Council executive meeting said. Local governments can inject

capital into regional banks via investment in convertible bonds and local

authorities are also being encouraged to explore other ways to boost banks'

capital, the government said.

     POLICY: China's Ministry of Commerce said India should immediately change

its "discriminatory practices" against China and Chinese enterprises following a

ban on certain apps provided by Chinese tech firms, including ByteDance's

TikTok. "China hasn't taken any restrictive measures against Indian products and

services," MOFCOM spokesman Gao Feng said in a briefing on Thursday. The Indian

actions violated WTO rules and its commitments, said Gao, who didn't say whether

China will retaliate.

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

for the fourth day, resulting in a net drain of CNY70 billion given the same

amount of reverse repos matured, according to Wind Information. The total

liquidity in the banking system is at a relatively high level, which can absorb

the impact of matured repos and government bond issuance, the PBOC said on its

website.

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

institutions (DR007) declined to 1.8450% from 2.0254% on Wednesday, Wind

Information showed. The overnight repo average fell to 1.7131% from 1.9638%.

     YUAN: The yuan weakened to 7.0663 against the dollar from 7.0611 on

Wednesday. PBOC set the dollar-yuan central parity rate lower at 7.0566,

compared with the 7.0710 set on Wednesday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.8575%, up

from the close of 2.8450% on Wednesday, according to Wind Information.

     STOCKS: The Shanghai Composite Index rose 2.13% to 3,090.57, the highest

level this year with financial and real estate companies leading the surge. Hong

Kong's stock market rallied 2.85% to 25,124.19.

     FROM THE PRESS: China's period of loosest monetary policies since the

pandemic started has passed and PBOC is likely to choose the appropriate time to

exit monetary easing in order to curb arbitrary trading and benefit the real

economy, the China Securities Journal said in an analysis. Policy needs to shift

back to stabilizing growth and preventing risks, though liquidity in the second

half of this year will remain ample as the pandemic persists, the journal said.

     The People's Bank of China may cut the required reserve ratios for banks in

July to ease the pressure on liquidity, according to Citic Securities, one of

China's leading state-owned brokerages. In an analysis report, Citic said the

move would help banks meet the requirement of "giving up 1.5 trillion profits",

and the PBOC would also lower the money market policy rates. Liquidity in the

banking system should stay reasonable and ample in July, Citic said.

     On Hong Kong affairs the US is isolated, the Global Times said in its

editorial, since no US allies are following through with sanctions against the

National Security Law for Hong Kong. European countries have only stressed the

law should not destroy Hong Kong's high degree of autonomy and democracy, the

Times said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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