MNI China Daily Summary: Wednesday, July 12

EXCLUSIVE: The People’s Bank of China (PBOC) will likely cut policy rates in H2 as economic conditions worsen and policymakers shelve their wait-and-see approach, despite Beijing's continued stance that GDP remains on track to tip 5% growth this year, leading economists told MNI.

LIQUIDITY: The PBOC conducted CNY2 billion via 7-day reverse repos, with the rates at 1.90%. The operation has led no change to the liquidity after offsetting the maturity of CNY2 billion reverse repo today, according to Wind Information. The operation aims to keep banking system liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.7526% from 1.7270%, Wind Information showed. The overnight repo average increased to 1.2256% from the previous 1.1839%.

YUAN: The currency strengthened to 7.1899 against the dollar from 7.1985 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1765 , compared with 7.1886 set on Tuesday. The fixing was estimated at 7.1912 by BBG survey today.

BONDS: The yield on 10-year China Government Bonds was last at 2.7010%, up from Tuesday's close of 2.7000%, according to Wind Information.

STOCKS: The Shanghai Composite Index fell 0.78% to 3,196.13 while the CSI300 index decreased 0.67% to 3,843.44. The Hang Seng Index was up 1.08% to 18,860.95.

FROM THE PRESS: China is on track to achieve 5.5% GDP growth this year given low base effects, according to an Institute of Finance, Academy of Social Sciences report. The institute said the economy could have grown up to 7% in Q2 y/y, but the q/q level may be lower. Authorities need to tackle persistent weak demand by increasing counter-cyclical adjustments and expanding fiscal monetary policy to boost market expectations and confidence, the report said. The central bank should cut policy interest rates by a large margin in H2 to combat rising real interest rates which harm the private sector recovery. (Source: 21st Century Herald)

China’s new yuan loan, rebounding by CNY3.05 trillion in June, hit a record high in the same period, as both corporate and household loans increased significantly. Meanwhile, bill financing decreased, indicating optimized credit structure, said Wen Bin, chief economist of China Minsheng Bank. Loans to enterprises increased by CNY2.28 trillion in June, as rate cut has stimulated investment and production demand and banks rush to boost credit at quarter-end. While loans to individuals rose by CNY963.9 billion, only second to the level in March this year, thanks to the Dragon Boat Festival holiday and mid-year shopping festivals driving needs for consumer loans. The prudent monetary policy will still promote loose credit to achieve the effect of demand expansion which is key to economic recovery, said Wang Yunjin, senior researcher of Zhixin Investment Research Institute. (Source: 21st Century Herald)

China will improve the regulation of total energy consumption in efforts to reduce carbon emissions as the country constructs a clean power system, according to President Xi Jinping. Speaking at a recent central committee meeting, Xi said the country will transition to a new development pattern based on services and focus on institutional opening up. China needs to enhance reforms of foreign exchange and international cooperation in finance and innovation. (Source: Yicai)