MNI China Daily Summary: Wednesday, July 4

     TOP NEWS: China's property market should further cool as the country's

urban renewal projects face tighter financing restrictions, a government

think-tank researcher said in an interview with MNI. These policy changes will

help small- and medium-sized cities to prevent housing prices from rising to too

high a level, said Liu Cheng, director of the investment department of China

City Development Academy(CCDA), to MNI.

     TOP NEWS: A combination of verbal intervention from the People's Bank of

China (PBOC) and rumoured physical intervention via Chinese state-owned banks on

Tuesday is serving to underpin a notable recovery in the yuan. USDCNH & USDCNY

now trade over 9 figures off of their recent respective highs, underpinning a

pullback in the USD. 

     LIQUIDITY: The PBOC injected CNY10 billion via its 7-day reverse repos on

Wednesday, resulting in a net drain of CNY80 billion as a total of CNY90 billion

reverse repos matured today, according to a statement on the PBOC website.

CFETS-ICAP's money-market sentiment index closed at 28 on Wednesday, down from

32 on Tuesday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.5989% on

Wednesday from 2.6430% on Tuesday; Overnight average decreased to 2.1225% from

2.3241% on Thursday: Wind Information.

     YUAN: The yuan surged against the U.S. dollar on Wednesday, rising to

6.6045 from Tuesday's 6.6365 closing, despite today's weaker fixing. The PBOC

set the yuan central parity rate at 6.6595, weaker than Thursday's 6.4706.

Today's fixing is the lowest since Aug 23, 2017. Scotiabank believes that "the

PBOC will squeeze front-end yuan funding costs to defend the local currency if

the yuan exchange rate slumps again."

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

3.5100%, up from the previous close of 3.5000%, according to Wind Information.

     STOCKS: Shanghai Composite Index closed 1.00% lower at 2759.13, weighted

down by real estate and the looming tariff deadline this Friday. However, ZTE

shares rose by daily maximum limit after it was allowed to temporarily resume

some business activities as the U.S. considers lifting the 7-year ban. Hong

Kong's Hang Seng Index declined 1.14% to 28220.40.

     FROM THE PRESS: The PBOC will propose trading mechanisms for maturing bond

defaults and further promote bond market infrastructure to connect domestic and

foreign bond markets, Xinhua Finance reported, citing Pan Gongsheng, director of

State Administration of Foreign Exchange. Allowing some bonds to default is good

for the long term and healthy development of China's bond market, Pan said

according to Xinhua Finance. Appropriate bond defaults place controls on both

issuers and investors, and the prices of the bonds will reflect the quality of

the bonds, Pan said according to the news service.

     China's financial regulators should have a flexible approach to guiding

structural deleveraging, Shanghai Securities News reported citing Ma Jun, a

member of the Monetary Policy Committee of the PBOC. The Financial Stability and

Development Committee (FSDC) should coordinate with different parties to control

the strength and pace of deleveraging and be on guard for secondary risks in the

process, Ma told the newspaper.

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

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

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