MNI China Press Digest, July 10: Inflation, Yuan, Liquidity

     BEIJING (MNI) - The following lists highlights from Chinese press reports

on Friday:

     China's inflation rate will return to a downward trend after a brief

rebound in June, and price levels in the second half of the year will be

significantly lower than in the first half, the Shanghai Securities Journal

reported citing analysts. June CPI, which rose to 2.5% y/y from May's 2.4% was

pushed higher largely by rising pork and vegetable prices. The pork price gain

will continue to narrow in the second half as the supply of hogs increases, the

newspaper said citing Tang Jianwei, chief researcher at the Bank of

Communications. The average annual CPI gain will be within the range of 3% y/y,

the newspaper added. 

     The Chinese yuan may rise steadily in the second half of the year,

supported by the country's economic fundamentals, a continuous inflow of foreign

capital and a relatively weak U.S. dollar, the Economic Information Daily

reported citing analysts. The expectation of a yuan appreciation has also

boosted the confidence of foreign investors to increase their holdings of yuan

assets, the newspaper added. The yuan rose above the seven mark against the U.S.

dollar and closed at 6.9862 yesterday, an increase of 314 points from the

previous trading day.

     The PBOC may restart injecting liquidity through reverse repo operations to

fill in the liquidity gap in the following days, the China Securities Journal

reported citing analysts. The issuance of CNY1 trillion in special Treasury

bonds should be completed by the end of July along with some local government

bonds and this is certain to cause a liquidity gap, the newspaper said.

Liquidity would also be further tightened with the upcoming tax season around

mid-July. The PBOC might also roll over CNY400 billion of medium-term lending

facilities maturing in the second half of July, the Journal's report said. 

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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