MNI China Press Digest July 05: Shanghai Co-op, LGFVs, Yuan

Highlights from Chinese press reports on Wednesday:

• China will promote the use of local currency trade settlement among members of the Shanghai Cooperation Organisation (SCO), according to President Xi Jinping. Speaking at the SCO summit, Xi said members should focus on practical cooperation to accelerate the economic recovery, oppose protectionism and resist decoupling. China will strengthen the high-quality connections of the Belt and Road Initiative and ensure stability and smoothness in the regional industrial supply chain. Xi said Beijing wants to expand cooperation on sovereign digital currencies and promote the establishment of an SCO development bank. (Source: Yicai)
• China's top state-owned banks are offering local government financing vehicles (LGFVs) loans with ultra-long maturities and temporary interest relief to prevent a credit crunch, reported Guru Club, a financial publisher citing anonymous sources. Banks including the Industrial and Commercial Bank of China and China Construction Bank have started to ramp up loans that mature in 25 years to qualified LGFVs in recent months, compared to the prevailing 10-year tenor for most corporate lending. Some loans have interest or principal payments waived for the first four years, though the interest will accrue later, the source said. (Source: Guru Club)
• Overseas portfolio investors short the yuan have increased their CNY holdings, as weakness in the currency failed to trigger a phased outflow of capital. Strong overseas demand for yuan bonds amid the sluggish global economic recovery and CNY's depreciation has made yuan assets more attractive, according to a Hong Kong private equity fund manager. Swap Connect also facilitates overseas investors holding domestic yuan bonds, as they do not need to reduce their holdings due to the widening China-U.S. interest-rate spread, the manager said. The net purchase of domestic bonds by foreign investors in June continued from May's relatively high level, while fx settlement and sales showed higher surplus than the previous month. (Source: 21st Century Business Herald)