MNI China Daily Summary: Thursday, July 3

     POLICY: China's financial institutions should improve their corporate

governance to adapt to a more complex and open financial system, Guo Shuqing,

chairman of the China Banking and Insurance Regulatory Commission wrote in an

article published by the Economic Daily on Friday. Across China, financial

institutions are not yet fully in line with global governance standards, which

include equal rights and responsibilities, compatible incentives and constraints

and strict risk control, according to Guo.

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

for the fifth day, resulting in a net drain of CNY110 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) fell to 1.8259% from 1.8450% on Thursday, Wind Information

showed. The overnight repo average declined to 1.3596% from 1.7116%.

     YUAN: The yuan weakened to 7.0680 against the dollar from 7.0663 on

Thursday. PBOC set the dollar-yuan central parity rate higher at 7.0638,

compared with the 7.0566 set on Thursday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.8975%, up

from the close of 2.8575% on Thursday, according to Wind Information.

     STOCKS: The Shanghai Composite Index rallied 2.01% to 3152.81 with

securities companies seeing the most increase. Hong Kong's stock market

increased 0.99% to 25,373.12.

     FROM THE PRESS: China's Loan Prime Rate is likely to be cut in July after

staying unchanged for the last three months as lowering borrowing costs has

become more important to China this year, according to China Securities Journal

citing Ming Ming, the deputy head of the Research Department of Citic

Securities. The PBOC needs to cut money market policy rates or cut reserve

ratios to drive banks to lower rates, said Ming, adding more easing from the

central bank is still likely in Q3.

     The problem the U.S. has with the situation in Hong Kong is not the passage

of new acts, but the extent to which it is willing to damage the city and the

mainland China at the expense of its own interests, Global Times said in an

editorial. U.S. sanctions are merely symbolic, said the communist party tabloid.

The U.S. may raise Hong Kong tariffs to that of the mainland, or prevent the

Hong Kong dollar from pegging to the US dollar but those measures will come at

some cost. The U.S. risks losing a large amount of its trade surplus with Hong

Kong and this will hit the US dollar's status as a global currency, the

newspaper said.

     Local governments will deal with the financial risks of regional banks or

even promote mergers while they are injecting capital into the banks, according

to a commentary by the China Securities Journal. The article, citing unnamed

analysts, said governments could require the banks to carry out certain

governance overhauls or reforms before converting the convertible bonds into

common shares, which are recognized as core tier one capital. Regional banks in

China need to raise CNY900 billion to 1.5 trillion in capital by the end of

2020, the article said quoting an estimate by China Securities.

--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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