MNI China Daily Summary: Wednesday, June 27 (UPDATE)

Updated Top News analysis.

     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. This is

another sign of "structural loosening" of monetary policy, after the PBOC said

it would cut some banks' reserve requirement ratios. The support of SMCs has

become a stimulus measure for policymakers to boost the economy amid early signs

of weakness.

     TOP NEWS: USDCNH remains just shy of resistance at 6.60 as of 9:40 a.m.

Beijing time, which marked the breakout level in December 2017 following months

of sideways trading. There is no significant resistance beyond this level, but

we expect to see the PBOC step up efforts to defend the currency should yuan

weakness continue.

     DATA: Combined profits made by China's industrial companies in January-May

rose 16.5% from a year ago to CNY2.73 trillion, the National Bureau of

Statistics said Wednesday. This is higher than an increase of 15.0% y/y in

Jan-Apr, and was the highest increase so far in 2018. Industrial profits for May

rose by 21.1% y/y to CNY607.06 billion, following the rapid growth rate of 21.9%

y/y in April.

     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 further.

     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.

     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 rose 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,

as the U.S. is said to increase restriction on Chinese companies' tech

investment in the U.S. 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.

     China pledges to protect intellectual property rights and will never force

technology transfer, said Chinese Premier Li Keqiang, as reported by the

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

liberalization. China welcomes foreign enterprises to expand cooperation with

China, particularly high-tech cooperation, Li said. China will make it more

convenient 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

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

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