MNI China Daily Summary: Tuesday, July 10

     TOP NEWS: China interbank market cheered after the People's Bank of China

(PBOC) opened the liquidity floodgate to head off the usual June anxieties over

a destabilizing cash crunch and soothe concerns over an economic slowdown. A

total 18 out of 19 traders who took part in the latest MNI monthly interbank

survey reported an improvement in liquidity conditions -- a first since the poll

began in May 2014.

     DATA: China's National Bureau of Statistics released consumer price index

(CPI) and producer price index (PPI) data for June today. PPI rose sharply in

June, up 4.7% on the year, while the CPI rose at a steady 1.9%. The PPI increase

in June was the highest since the 4.9% recorded in December, accelerating from

4.1% in May.

     LIQUIDITY: The PBOC skipped its open market operations for a second

consecutive day on Tuesday, stating that a relatively high level of liquidity

can absorb maturing reverse repos. That resulted in a net drain of CNY30

billion, as the same amount of reverse repos matured today. CFETS-ICAP's

money-market sentiment index closed at 38 on Monday, up from 32 on Friday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.6481% on

Tuesday from 2.5696% on Monday; overnight average increased to 2.3006% from

1.9514% on Monday: Wind Information.

     YUAN: The yuan rose to 6.6018 against the U.S. dollar on Tuesday from

Monday's 6.6175 closing, following today's stronger fixing. The PBOC set the

yuan central parity rate at 6.6295 from Monday's 6.6393.

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

3.5400%, down from the previous close of 3.5450%, according to Wind Information.

     STOCKS: Shares in Shanghai rose for a third consecutive day despite the

trade tensions between the U.S. and China. Shanghai Composite Index closed 0.44%

higher at 2827.63. Hong Kong's Hang Seng Index rose 0.54% to 28842.92. Shares in

the Chinese smartphone maker, Xiaomi bounced back 15% in Hong Kong after bad

first day, taking Xiaomi's shares above their issue price of 17 Hong Kong

dollars. Chinese H-shares are extending their gains today even as A-shares

weaken, helping to reverse 5 consecutive days of A-share outperformance which

has taken the AH-Premium index back up to 120.8.

     FROM THE PRESS: The fine-tuning of monetary policy tools should not be read

as a policy reversal, two researchers at the state-run think tank National

Institute for Finance and Development, wrote in a commentary published by the

21st Century Business Herald. Monetary policies are not enough to address

structural issues; instead, the PBOC should construct a more comprehensive

structural policy regime and use targeted policies to regulate the flow of

capital, the researchers said. China should strengthen its support to small and

micro firms, initiate more active fiscal policies and better regulate SOEs,

according to the commentary.

     The State Council, with some of its ministries, has published a policy

package that will increase imports to promote foreign trade balance, reported

Economic Information Daily. The package aims to satisfy rising consumption

demands and to upgrade industrial structure, said the Daily. China will support

imports of consumer products, medicines and nursing facilities to upgrade

consumption, and Belt & Road countries will be key sources of imports, said the

Daily. China will accelerate building trade free zones and enhancing the

liberalization and efficiency of foreign trade, the Daily added.

     China's central state-owned enterprises (SOEs) should stick to supply-side

structural reform and improving their investment structure to deleverage, China

Securities Journal reported citing Xiao Yaqing, director of State-owned Assets

Supervision and Administration Commission (SASAC). The average debt/asset ratio

of central government SOEs was 66.0% as of May, 0.4 percentage point lower over

last year and 0.3 pp less than the ratio at the beginning of 2018, according to

the Daily. Xiao urged SOEs to implement debt-to-equity swaps and mixed ownership

reform to lower debts, said the Daily.

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

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

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