MNI China Daily Summary: Wednesday, June 27

     TOP NEWS: The People's Bank of China (PBOC) will cut relending interest

rates for small and micro companies (SMCs) by 0.5 percentage point as part of a

broader policy package to ease the financial strain on small firms. In addition,

the relending and rediscount quotas for small companies and for sectors

concerning rural areas will be increased by a total of CNY150 billion.

     POLICY: China is closely watching news that the U.S. may increase

restrictions on Chinese investment in the States, and will evaluate the

potential impact on Chinese companies, China Ministry of Commerce said, without

elaborating more.

     POLICY: China will lower import tariffs on products from some Asia Pacific

countries as of July 1, 2018, according to the Asia-Pacific Trade

Agreement-Second Amendment, published by Customs Tariff Commission of the State

Council. Tariff on soybean from India, South Korea, Bangladesh, Laos and Sri

Lanka will be cut to zero from 3%. The list also includes chemicals,

agricultural goods, medical goods, clothes, iron and steel and other products,

which will all receive tariff cuts at different levels.

     YUAN: USDCNH remains just shy of resistance at 6.60, which marked the

breakout level in December 2017 following months of sideways trading. There is

no significant resistance beyond this level, but we would expect to see the PBOC

step up efforts to defend the currency should yuan weakness continue.

     LIQUIDITY: The PBOC injected CNY60 billion via its 7-day reverse repos on

Wednesday, resulting in a net drain of CNY150 billion as a total of CN210

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

website. CFETS-ICAP's money-market sentiment index closed at 36 on Tuesday, down

from 37 on Monday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.8704% on

Wednesday from 2.8095% on Tuesday; Overnight average decreased to 2.3855% from

2.4612% on Tuesday: Wind Information.

     YUAN: The yuan opened at 6.5717 against the U.S. dollar today, weaker than

Tuesday's official close of 6.5560 and also weaker than today's central parity

rate of 6.5569, which is the lowest since December 25, 2017. The central bank

has set the fixing weaker for the sixth consecutive day. Today's fixing marks

the biggest daily drop since August 22, 2016.

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

3.2650%, up from the previous close of 3.2600%, according to Wind Information.

     STOCKS: Shares in Shanghai continued to decline, once falling through 2800,

with the depreciation of the yuan and the deadline of the U.S. trade sanctions

approaching. Shanghai Composite Index closed 1.10% lower at 2813.18, the lowest

since May 2016. Hong Kong's Hang Seng Index fell 1.06% to 28575.11.

     FROM THE PRESS: The PBOC resumed open market operations yesterday, sending

a clear signal to maintain sufficient market liquidity, said China Securities

Journal. June's large fiscal expenditure will also boost the supply of liquidity

to the market, said the Journal. The regulation requirement of liquidity has

changed from "steady and prudent" to "proper and sufficient," confirming a

looser monetary policy as of last Wednesday's executive meeting of the State

Council, according to the Journal.

     Devaluation of the yuan will leave some margin for China-U.S. trade

tensions, said Wang Youxin, foreign exchange researcher of Bank of China,

reported Securities Daily. The PBOC set the central parity rate at 6.5180

yesterday, the lowest since January 10th. The trade tensions and huge policy

divergence between China and the U.S. resulted in the devaluation, said Wang

Qing, chief macro analyst of Golden Credit, according to the Daily. However,

regulators have increased their tolerance for wide fluctuations; they are not

likely to intervene in the short term. In the long term, the yuan will not

continue to decline due to the resilience of China's macro economy, said the

Daily.

     Chinese Premier Li Keqiang said China pledges to protect intellectual

property rights and that it will never force technology transfer, when he

welcomed French enterprises to expand their cooperation with China, reported the

People's Daily. Li noted that China will continue to open up and promote trade

liberalization. China welcomes foreign enterprises to expand high-tech

cooperation, Li said. China will also provide greater convenience for foreign

enterprises to conduct business in China, Li added.

--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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