MNI China Daily Summary: Friday, August 11

     TOPS NEWS: China's fiscal revenues rose in July on a lower comparison base

and rising prices for some commodities, according to data issued by the Ministry

of Finance on Friday. The MOF said fiscal revenues rose 11.1% year-on-year to

CNY1.65 trillion in July, compared with 8.9% growth in June and a 3.3% increase

last July. China's fiscal spending in July, meanwhile, rose 5.4% year-on-year to

CNY1.35 trillion, compared with 0.3% growth during the same period last year and

a 19.1% jump in June, as expenditures by both local and central governments

increased, the MOF said.

     TOP NEWS: China warned through a major state-run newspaper on Friday that

it would prevent any attempted overthrow of the North Korean regime by the

United States and South Korea, but that if North Korea strikes the U.S. with

missiles first and the U.S. retaliates, China would remain neutral. An editorial

in the nationalistic Global Times, which is run by the official People's Daily,

said that Beijing was not able to persuade either Washington or Pyongyang "to

back down at this time," and wanted both sides to "understand that when their

actions jeopardize China's interests, China will respond with a firm hand."

     TOPS NEWS: The People's Bank of China injected CNY70 billion in seven-day

reverse repos and CNY60 billion in 14-day reverse repos via open-market

operations. This resulted in a net zero injection/drain for the day after the

same amount matured. The PBOC drained a net CNY30 billion via OMOs this week.

The CFETS-ICAP money-market sentiment index ended at 45 on Thursday, up from 41

at Wednesday's close. The lower the reading, the better the liquidity conditions

in the interbank market.

     RATES: Money market rates fell. The seven-day repo average was last at

2.8337%, lower than Thursday's average of 2.9031%. The overnight repo average

was at 2.7702%, lower than Thursday's 2.7885%.

     RATES: The Ministry of Finance sold CNY10 billion in 91-day treasury bills

at a yield of 2.8124% in an auction. The yield was lower than 2.9055% for bonds

with the same maturity in the secondary market on Thursday.

     RATES: The Ministry of Finance sold CNY10 billion in 182-day treasury bills

at a yield of 3.2189% in an auction. The yield was lower than 3.2463% for bonds

with the same maturity in the secondary market on Thursday.

     YUAN: The yuan fell against the U.S. dollar despite a stronger fixing rate

set by the People's Bank of China. The yuan was last at 6.6706 against the U.S.

unit, compared with the official closing price of 6.6610 on Thursday. The PBOC

set the yuan central parity rate against the U.S. dollar at 6.6642, stronger

than Thursday's 6.6770. Friday's fixing was the strongest since 6.6513 on Sept.

22.

     BONDS: The yield on benchmark 10-year China government bonds was last at

3.6164%, down from the previous close of 3.6357%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by the resources sector. The benchmark

Shanghai Composite Index closed down 1.63% at 3,208.54, the biggest fall since

the 2.47% drop on Dec. 12. Hong Kong's Hang Seng Index was 2.06% lower at

26,879.44.

     FROM THE PRESS: The green bond market continued to grow in the first half

of this year because of government policy support and the active participation

of issuers, the Financial News, a journal run by the People's Bank of China,

reported Friday. For the first six months this year, the issuance of green bonds

totaled CNY77.67 billion, accounting for 23% of global green bond issuance, the

report noted. Domestic issuance reached CNY67.79 billion, increasing 28%

year-on-year. City commercial banks have been the most active issuers,

accounting for 33% of the total 24 issuers. The next step in the development of

this market is a further improvement in information transparency, the report

added. (Financial News)

     Reform of the yuan exchange rate needs to push ahead at a stable pace,

given that any change in policy will bring challenges, the Shanghai Securities

News reported Friday, quoting Guan Tao, former head of the balance of payments

division at the State Administration of Foreign Exchange (SAFE) and now a

research fellow with the 40Forum think tank. The final goal of reform is to

achieve a free-floating exchange rate, but in the process there will be some

regression because of market changes, Guan said. The appreciation of the yuan

exchange rate is a strong push-back to the yuan depreciation expectations, Guan

argued. Strict controls on overseas direct investments and a further opening up

to foreign direct investment are the main reasons for the increase in foreign

exchange reserves in the first half of the year, Guan said. (Shanghai Securities

News)

     Chinese securities firms' asset management businesses shrank CNY673.97

billion in the second quarter this year, the first fall in three years, due to

tighter regulation, the Securities Times reported Friday. "Channel

transactions," in which securities companies invest mainly in non-standard

assets for other entities, decreased CNY619.38 billion, the report noted.

Securities companies have started to turn to asset-backed securities (ABS), the

report said, adding that over CNY1 trillion of ABS investments have been

recorded in the first half of this year. (Securities Times)

     Consumption and exports will continue to support the stable growth of the

economy, but investment growth will slow, the Shanghai Securities News reported

Friday, quoting Zou Yunhan, an official at the National Information Center run

by the National Development and Reform Commission, China's top economic planning

agency. The re-stocking cycle is ending and new drivers for economic growth have

not formed yet, Zou noted. Overcapacity and weak private investment are still

problems, while the side effects from the deleveraging campaign need to be

watched closely, Zou warned. The central bank needs to maintain a prudent and

neutral monetary policy and inject liquidity when regulations are tightened to

prevent sharp volatility in financial markets, Zou added. (Shanghai Securities

News)

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

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

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