MNI China Daily Summary: Wednesday, June 12

     SOURCES: The People's Bank of China (PBOC) is likely to avoid any yuan

sharp weakness until at least a G20 summit when President Xi Jinping may meet

President Donald Trump to discuss the two nations' trade dispute, sources

familiar with the PBOC's operations told MNI. While the U.S. has warned China

not to use yuan depreciation as a weapon to counter the effects of tariffs,

Chinese policy makers also have their doubts about the wisdom of letting the

currency slide beyond the widely-watched level of 7 to the dollar, the sources

said. "The 7 level still matters to policy makers, considering the central bank

has to guard against volatility in the financial sector ... and there is a risk

that the currency would see a sharp fall after breaking the key level. If so,

then tolerating the break may be not a good option," a source said.

     DATA: China's highest inflation in over a year was mostly caused by food

and unlikely to change the official monetary policy stance given the limited

scope of higher consumer prices. Inflation was 2.7% y/y in May, up from April's

2.5%, the National Bureau of Statistics said today. That falls in line with the

projection by economists polled by MNI. PPI rose to 0.6% y/y, down from April's

0.9%, also meeting market expectations.

     DATA: China's M2 expanded 8.5% y/y in May, in line with the April reading

and matching the MNI survey median forecast, data released by the PBOC today

showed. New loans totalled CNY1.18 trillion, edging up from CNY1.02 trillion in

April, but a shade less than CNY1.2 trillion projected by MNI. Aggregate

financing to the economy rose CNY1.4 trillion from April's CNY1.36 trillion,

beating CNY1.33 trillion projection. 

     LIQUIDITY: The PBOC injected CNY15 billion via 7-day reverse repos, and

CNY20 billion via 28-day reverse repos, adding liquidity for the seventh day.

This resulted in a net drain of CNY25 billion given that CNY60 billion of

reverse repos matured today, according to Wind Information.

     RATE: The 7-day weighted average interbank repo rate for depository

institutions (DR007) fell to 1.8000% from Tuesday's close of 2.5153%, Wind

Information showed. The overnight repo average decreased to 1.9600% from

Tuesday's 2.0382%.

     YUAN: The Chinese currency weakened to 6.9167 against the dollar from

Tuesday's close of 6.9138. The PBOC set the dollar-yuan central parity rate

higher at 6.8932 today, compared with 6.8930 set on Tuesday.

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

3.2850%, up from Tuesday's close of 3.2800, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index fell 0.56% to 2,909.38. Hong

Kong's Hang Seng Index decreased 1.73% to 27,308.46.

     FROM THE PRESS: U.S. government's demand for its scientists to cut links

with foreign sponsors is self-destructive and will ultimately dampen its

prosperity, the Global Times, owned by the People's Daily, commented today. The

move signalled a return to the anti-communist McCarthyism of the 1950s, and

could result in the widespread persecution of Chinese scientists in the U.S.,

the newspaper said.

     Beijing's new policy to allow local governments use proceeds from special

bonds as capital for key infrastructure projects will add about CNY700 billion

leverage, said the Securities Daily citing Guo Xiaobei, analyst at Mingsheng

Bank. The policy will send a positive signal to the financial markets, and is

conducive to economic growth and corporate performance, the newspaper said. The

major factor restricting infrastructure investment is a lack of funding, and the

latest policies addressed this issue, the Daily cited Guo as saying.

     The PBOC is expected to keep liquidity at an ample level through open

market operations and there is room for a targeted reserve requirement cut and

lower interest rates, China Securities Journal reported today. Citing Pan

Xiangdong, chief economist at New Times Securities, the PBOC may stabilize

liquidity conditions by liberalizing interest rates and lowering the loan prime

rate (LPR) or the targeted medium-term lending facility (TMLF) rate, the

newspaper said.

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

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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]