China Press Digest: Thursday, August 17

     BEIJING (MNI) - The following are highlights from the China press for

Thursday, August 17:

     China's prudent and neutral monetary policy needs to be fully implemented,

and cutting banks' reserve requirement ratios could be an option for that

policy, the 21st Century Business Herald said Thursday. This year's monetary

policy actually is leaning looser than last year, with new loans reaching CNY8.8

trillion in the first seven months, CNY798.1 billion more than in the same

period last year. Increasing capital demand and the strong desire of financial

institutions to expand are causing monetary policy to loosen, hindering the goal

of neutral policy. Therefore, the monetary policy framework needs to be reformed

to slow down the growth in the scale of financing and improve financial

institutions' investment structures, the newspaper argued. A reduction in the

reserve requirement ratio could facilitate such a reform, it added, allowing

financial institutions to have more excess reserves and rely less on liquidity

injections by the People's Bank of China. (21st Century Business Herald)

     As industrial capacity cuts increase, the pricing of upstream products

needs to be examined, the Economic Information Daily, a newspaper under the

official Xinhua news agency, said Thursday in a front-page commentary. On the

one hand, capacity cuts have enhanced prices in higher-end products, which has

caused profits in some industries to rise to their best levels in history.

However, the rapid expansion of upstream products has eroded profits for

industries with lower-end products. China's capacity reduction program has had

some success, and some industries' fortunes have improved. But policymakers

should place controls on pricing ranges and avoid any rapid decrease in prices

to balance profits in upstream and downstream industries, and also to avoid a

excessive increase in prices that could hinder economic growth. (Economic

Information Daily)

     The People's Bank of China is likely to maintain its current monetary

policy given adequate growth and the approach of this autumn's Communist Party

Congress, at which new political leadership will be chosen, the South China

Morning Post reported Thursday. The expansion of China's aggregate social

financing is above the lowest monthly growth of M2 money supply, suggesting the

central bank is walking a fine line between debt growth and economic expansion.

Analysts say China's efforts to rein in debt has helped boost the real economy.

(South China Morning Post)

     Property developers are caught between adding leverage and deleveraging,

the 21st Century Business Herald reported Thursday. During a time when China is

campaigning for deleveraging, property companies are under pressure to avoid

losing out during consolidation in the sector that has resulted from government

controls. At the same time, they need financing to acquire land and are afraid

of losing investment opportunities. Some property developers are aggressive in

acquiring land, even resorting to using off-balance-sheet credit, such as

private financing, which usually has a high interest rate. An unidentified

expert told the newspaper that the debt ratio of property developers has edged

up amid the new consolidation cycle. The pressure on developers to translate

investment into revenue has become more intense and the financing environment

has tightened, making debt management more difficult. The expert warned that

some property developers' aggressive land and project acquisitions are like

gambling: if they make the right judgment, they could boost their growth; if

not, they could be stuck in a debt crisis and be acquired by other companies.

(21st Century Business Herald)

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

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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