MNI China Daily Summary: Thursday, June 14

     TOP NEWS: Fitch Ratings raised forecast for China GDP growth this year to

6.6% on Thursday, up from 6.5% projected in March. It also raised 2019 outlook

by 0.2 percentage point to 6.3%. Fitch cited momentum in exports, real estate

investment, and recent uptick in y/y industrial production growth. It noted the

risk that U.S. tariffs on Chinese exports may still negatively impact trade.

     TOP NEWS: China needs to reform its monetary policy framework to improve

efficacy and accuracy for communicating with and guiding financial markets, Ma

Jun, former chief economist at the People's Bank of China (PBOC), said in a

report. The PBOC should further reduce banks' required reserve ratios (RRRs) to

increase the liquidity multiplier effect. The current high RRR levels limit the

interest rate transmission mechanism and hinder Chinese banks' participation in

international competition when the country opens up its capital account.

     TOP NEWS: The PBOC will promote yuan internationalization, support

Shanghai's trial cross-border yuan-related businesses and products, optimize

yuan's function in setting commodity prices, and support One Belt, One Road

initiative, Governor Yi Gang said at the Lujiazui forum in Shanghai. China will

promote capital account convertibility, support Shanghai's forex regulatory

reform, facilitate capital account transactions and convertibility, Yi said.

China will further remove shareholding and licensing restrictions on foreign

institutions, promote financial innovation and fintech development, Yi said.

     POLICY: China is willing to work with France to fight protectionism and

facilitate globalization and sustainable development of trade, the Ministry of

Commerce (MOFCOM) said in a briefing. Some Chinese companies are still seeing

their trade with overseas companies expand even amid tensions with the U.S., the

ministry said, shrugging off concerns that China's trade development is at risk.

     POLICY: China will seek to expand exports even while allowing imports to

gain, MOFCOM said. China is switching growth in exports towards a model

emphasizing higher quality and efficiency, away from seeking rate and scale, Gao

Feng, spokesman of the ministry, said at a regular briefing. China will nurture

new strengths of its exports, and increase exports to emerging markets, Gao

stressed. China's service sector will continue to see a trade deficit in the

coming years as it is much less competitive than other countries, Gao said. 

     LIQUIDITY: The PBOC injected CNY70 billion via its 7-day reverse repos,

CNY50 billion via its 14-day reverse repos, and CNY30 billion via 28-day reverse

repos, resulting in a net injection of CNY70 billion as a total of CNY80 billion

reverse repos matured. CFETS-ICAP's money-market sentiment index closed at 36 on

Wednesday, down from 39 on Tuesday. 

     DATA: National Bureau of Statistics

- Industrial output rose 6.8% y/y in May, in line with median of MNI survey. It

was lower than 7.0% y/y in April, and higher than 6.5% in May 2017. 

- Fixed-asset investment (FAI) increased 6.1% y/y in Jan-May, short of 6.9%

projected by survey. It was also slower than 7.0% in Jan-April and 8.6% in

Jan-May last year. 

- Property investment rose 10.2% y/y Jan-May. Housing starts grew 10.8%, up from

7.3% in Jan-April.

- Retail sales rose 8.5% y/y in May, the lowest since June 2003, and short of

forecast 9.5%. Auto sales recorded -1.0% y/y growth in May. 

- Surveyed urban unemployment was 4.8% in May, lower than 4.9% in April, and

4.9% last May. 

DATA: Ministry of Commerce:

- China attracted CNY58.81 billion in May, 7.6% growth (ON WHAT BASE?),

according to MOFCOM. 5,024 foreign companies were established in May, a 106.5%

y/y jump. In the first five months, FDI rose 1.3% y/y to CNY345.59 billion.

Newly-stablished foreign companies rose 97.6% y/y to 24,026. High-tech

manufacturing saw rapid growth of FDI at 61.9%. 

- Chinese companies did not increase outbound direct investment (ODI) in

overseas property market, sports and entertainment sectors. 

- ODI grew 38.5% y/y to $47.89 billion in May, the seventh month of growth. ODI

went to 2,987 foreign companies in 149 countries and regions. 

MONEY MARKET RATES: 7-day repo average rose to 2.8469% from 2.8132% Wednesday,

after the PBOC injected CNY70 billion via OMO. The overnight repo average

decreased to 2.5738% from Wednesday's 2.5755%.

     YUAN: Debt defaults by Chinese companies are still low relative to overseas

counterparts, Guo Shuqing, chairman of China's Banking and Insurance Regulatory

Commission, said at the Lujiazui forum in Shanghai. Defaulted payments were

0.42% of the total corporate bonds at end of May. "Very normal" to have debt

defaults in market economy. Parties should support businesses in short-term

operational difficulties, while close businesses with no hope making future

payments. Regulatory efforts should be raised to deter illegal conducts such as

fraud and misrepresentation.

     YUAN: The yuan rose to 6.3910 against the U.S. dollar from Wednesday's

closing of 6.4051. Earlier today, the PBOC set the yuan central parity rate at

6.3962 on Thursday, stronger than Wednesday's 6.4156. Today is the first day

that PBOC has set the fixing stronger, after four trading days in a row with

weaker fixings.

     YUAN: USDCNH edged lower overnight and has opened strong again this morning

in spite of the ongoing narrowing of interest rate spreads between China and the

US, with the 1-year spread now at just 55bps. USDCNH currently sits at 6.3896

and remains above lateral support at 6.3749 seen on June 7. The yuan's modest

strength was likely supported by the slight drop in the dollar index as

investors saw the Fed's move as a 'dovish hike', causing the euro to rise and

investors to expect the PBOC to set the yuan's parity rate stronger.

     BONDS: The yield on benchmark 10-year China Government Bond was last at

3.6325%, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led lower by education companies, with

Shanghai Xin Nanyang Co. down by almost 3%. ZTE shares dropped to the daily

maximum level making it suspended in the Chinese stock market. The benchmark

Shanghai Composite Index closed 0.18% lower at 3,044.16. Hong Kong's Hang Seng

Index declined 1.08% to 30,394.29.

     FROM THE PRESS: Some local securities regulatory bureaus have demanded that

financial institutions outline their plans to align with the new asset

management product regulations before June 30, reported China Securities

Journal. These bureaus have also asked financial institutions to release monthly

reports on how they will rectify outstanding products to fit the new rules, the

report said. However, some aspects of the asset management product rules are

still unclear, and financial institutions are still waiting for more details,

the report said.

     The property sector has seen improvements in its destocking, reported

Economic Information Daily. The 100 monitored cities saw the total area of

unsold homes at 427.08 million square meters, matching the total seen in March

2012, and falling by 1.6% m/m and 8.2% y/y, according to data from E-house China

R&D Institute. Property developers increased the new houses available on the

market partly because it became easier to get permission to sell from local

governments, the report cited Yan Yuejin, the research director at E-house China

R&D Institute. With the half-year performance assessment nearing, property

developers are likely to boost sales in June, which will help alleviate supply

pressures in some cities which caused housing price to rise too rapidly, the

newspaper said citing Yan.

     Local government bond issuance may reach a record high this year, Economic

Information Daily reported, citing analysts. The peak would come after local

governments started to approve new issues, the newspaper said, citing Wang

Wanhui, an analyst at China Chengxin International Research Institute. Local

governments mainly swapped old debt with bonds in the first five months, leading

to a low level of bond issuance in the period. In Jan-May, CNY876.6 billion

worth of local government bonds were issued, much lower than the CNY1.35

trillion in the same period last year, the newspaper said. Financing needs of

large infrastructure investment projects will boost new issues of such bonds,

the newspaper said, citing analysts.

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

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

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