MNI China Daily Summary: Tuesday, June 29

EXCLUSIVE: A change by the People's Bank of China to rules setting the ceiling on commercial deposit rates will reduce funding costs for banks and make it easier for them to give cheap loans to manufacturers, possibly easing credit conditions without the need for a benchmark cut but potentially forcing a shakeup of smaller lenders, bankers and other sources told MNI.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY30 billion via 7-day reverse repos with the rate unchanged at 2.2% on Tuesday. The operation resulted in a net injection of CNY20 billion given the maturity of CNY10 billion reverse repos today, according to Wind Information. The operation aims to keep liquidity stable at half-year end, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 2.5219% from the close of 2.2904% on Monday, Wind Information showed. The overnight repo average rose to 1.7805% from the previous 1.5667%.

YUAN: The currency weakened to 6.4575 against the dollar from Monday's close of 6.4565. The PBOC set the dollar-yuan central parity rate lower for a third trading day at 6.4567, compared with the 6.4578 set on Monday.

BONDS: The yield on 10-year China Government Bonds was last at 3.1125%, down from Monday's close of 3.1225%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.92% to 3,573.18, while the CSI300 index tumbled 1.17% to 5,190.54. The Hong Kong's Hang Seng Index lost 0.94% to 28,994.10.

FROM THE PRESS: The PBOC had warned in its latest policy meeting about risks from the Federal Reserve backing out its easing impacting China, the Securities Times said citing analyst Wen Bin of China Merchant Bank, commenting on the Q2 meeting of the monetary policy committee held on Monday, which added "preventing external impact" compared with Q1's statement. The central bank adjusted its outlook on the yuan, calling for "promoting an inner-and-outer balance" after the Chinese currency surged then fell in Q2, the newspaper said. The PBOC may have seen little need to tighten liquidity given the pandemic-hit economy needs to further solidify, and the central bank is likely to continue with targeted adjustments to smoothen out short-term fluctuations, the newspaper said citing analyst Zhang Xun of Everbright Securities.

China's GDP growth is projected to reach 12.3% in the first half of the year and 8.8% for full-year 2021, the Securities Times reported citing Liu Xiaoguang, associate professor at National Academy of Development and Strategy, RUC. Macro policy should focus on stabilizing industrial growth, boosting effective investment and further expanding domestic demand in H2, the newspaper said citing policy meetings of local authorities. H2 recovery driver will swift to domestic consumption from strong exports and production in H1, which needs increased fiscal spending in H2, the newspaper said citing Cheng Shi, chief economist of ICBC International.

Chinese local governments will issue about CNY3 trillion of bonds in H2 to boost infrastructure investment as authorities drive for more proactive policy, Yicai.com reported citing analysts. Fiscal spending, which totaled CNY9.3 trillion in the first five months, was lower than revenue of CNY9.65 trillion, and there needs to be as much as CNY15.7 trillion spending in the rest of the year to meet the budgeted expenditure for this year, the newspaper said. Fiscal spending should continue to focus on people's livelihood and social security, so to help boost consumption, the newspaper said citing Luo Zhiheng, deputy dean of Yuekai Securities Research Institute.