MNI China Daily Summary: Wednesday, July 1

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

for the third day, resulting in a net drain of CNY180 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.

     DATA: The Caixin China manufacturing Purchasing Managers' Index (PMI)

gained 0.5 to 51.2 in June from the previous month, staying in expansionary zone

above the breakeven 50 for two months, signalling a further rise in production

and a renewed increase in total new business. 

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

institutions (DR007) declined to 2.0257% from 2.3013% on Tuesday, Wind

Information showed. The overnight repo average rose to 1.9689% from 1.8298%.

     YUAN: The yuan strengthened to 7.0611 against the dollar from 7.0741 on

Tuesday. PBOC set the dollar-yuan central parity rate lower at 7.0710, compared

with the 7.0795 set on Tuesday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.8700%, up

from the close of 2.8500% on Tuesday, according to Wind Information.

     STOCKS: The Shanghai Composite Index rose 1.38% to 3025.98. Hong Kong's

stock market is closed for today.

     FROM THE PRESS: The People's Bank of China lowered the rates for re-lending

and re-discounting programs by 25 bps to boost lending to small firms but the

move does not mean the central bank embraces easier monetary policy, according

to the China Securities Journal citing Li Qilin, the chief economist with Yuekai

Securities. The Journal said the overall easing of monetary policy can create

arbitrage opportunities preventing money flowing into the real economy. The

growths of M2 and total social financing have reached central bank targets and

economic activity is resuming, which also means the central bank does not have

the need for any further monetary easing, Li added. 

     The National Security Law for Hong Kong safeguards the principle of "one

country, two systems" and will prevent Hong Kong from becoming the most

turbulent city in Asia, Global Times said in an editorial. Neither the central

government nor Chinese society wants to end the "One Country, Two Systems"

principle, but China won't allow extreme movements in Hong Kong can collude with

the US and other external forces to create chaos in the city, the newspaper

said.

     Chinese local government financing vehicles sold CNY2.13 trillion in bonds

in the first half of 2020, CNY300 billion higher than the last peak, according

to the Economic Daily citing data from Wind Information. Zhou Yue, the chief

fixed income analyst with Sinolink Securities, told the newspaper that about 79%

of the money raised by the bonds was used to substitute for old debts. Due to

their backing by local governments the market considered the financing vehicles

had better quality credit, so the bonds were sold at higher prices this year

than other bonds, Zhou 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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