MNI China Daily Summary: Friday, August 18

     TOPS NEWS: China's housing market continued to cool in July as restrictions

in the overheated property sector, including further limits on home purchases

and higher mortgage lending rates, have had their intended effect, data released

by the National Bureau of Statistics on Friday show. New home prices rose on a

year-on-year basis in all 70 cities included in the NBS statistics, the same as

in June, although at a much slower pace. The growth of new home prices in the

four Tier 1 cities decelerated on an annualized basis for the 10th consecutive

month in July, down a collective 1.7 percentage points from June. Beijing,

Shanghai, Shenzhen and Guangzhou recorded y/y growth rates of 9.6%, 8.4%, 0.5%

and 16.9%, respectively. The 31 Tier 2 cities saw their eighth straight month of

year-on-year growth declines in July, dropping a collective 0.8 percentage point

compared with June, the NBS said.

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

reverse repos and CNY50 billion in 14-day reverse repos via open-market

operations on Friday. This resulted in a net injection of CNY20 billion for the

day, as a total of CNY100 billion in reverse repos matured. The PBOC injected a

net CNY222 billion this week via reverse repos and Medium-term Lending Facility

instruments. 

     RATES: Money market rates were lower Friday morning. The seven-day repo

average was last at 2.8524%, compared with Thursday's average of 2.8879%. The

overnight repo average was at 2.8343%, compared with Thursday's 2.8650%.

     RATES: The Ministry of Finance sold CNY28 billion in 30-year treasury bills

at a yield of 4.1768% in an auction on Friday. The yield was higher than 4.1253%

for bonds with the same maturity in the secondary market on Thursday.

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

at a yield of 2.8112% in an auction on Friday. The yield was lower than 2.8219%

for bonds with the same maturity in the secondary market on Thursday.

     YUAN: The yuan was weaker against the U.S. dollar after the People's Bank

of China set the fixing rate weaker for the day. The yuan was last at 6.6770

against the U.S. unit after opening at 6.6750, compared with the official

closing price of 6.6731 on Thursday. The PBOC set the yuan central parity rate

at 6.6744, 0.05% weaker than Thursday's 6.6709.

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

3.5744%, compared with the previous close of 3.5820%.

     STOCKS: Stocks rose slightly, with the real estate and insurance sectors

leading gains. The benchmark Shanghai Composite Index closed up 0.01% at

3,268.72. Hong Kong's Hang Seng Index was 0.86% lower at 27,109.94.

     FROM THE PRESS: The U.S. cannot win a trade war with China, the official

People's Daily reported Friday. The investigation the U.S. initiated this week

into Chinese intellectual property practices uses Cold War rules that date back

before the establishment of the World Trade Organization, the report noted,

stressing the move by the Trump government is a matter of concern. Sino-U.S.

trade, both imports and exports, is determined by the markets and the choices of

companies and consumers in the two countries, the report argued. As the

second-biggest trading partner with the U.S., the top exporter to the U.S. and

the third-largest importer of U.S. products, China has "powerful weapons" to

fight back if a trade war starts, the report warned. (People's Daily)

     The balance sheets of some regional banks have showed obvious shrinkage,

with both assets and liabilities contracting, due to the government's strong

regulatory and deleveraging campaign, the Shanghai Securities News reported

Friday. According to half-year reports of local banking regulatory bureaus, the

non-performing loan ratios of some banks have started to increase, some to as

high as 3%, the report said. Under the pressure of credit risk and the launch of

more financial regulatory rules, NPL ratios will continue to rise in the second

half of this year, the report predicted. (Shanghai Securities News)

     Some CNY600 billion in special treasury bonds will mature at the end of

this month and are likely to be rolled over, the 21st Century Business Herald

reported Friday. A total of CNY1.55 trillion in special treasury bonds were

issued in 2007 to withdraw abundant liquidity in the market when international

payments were showing good two-way flows, the report said. But in the current

situation, particularly with banks' excess reserve ratios as low as 1.3%, the

market is relying on the central bank for injections of liquidity, so the

extension of the special bonds will worsen major liquidity pressure as it will

further drain liquidity from the market, the report argued. The bond market was

sluggish in the first half of the year and the issuance of treasury bonds

slowed, so rolling over the special treasury bonds would increase the pressure

on the market from treasury bond supply for the rest of the year, the report

added. (21st Century Business Herald)

     Smaller Tier 3 and Tier 4 cities need to be alert to the increase in real

estate inventories, the Economic Information Daily reported Friday. Recently,

the real estate market in Tier 3 and Tier 4 cities has been quite hot, while in

larger Tier 1 and Tier 2 cities it has been curbed by stricter regulations, the

report said. Expectations of higher housing and land price are growing in the

smaller cities. The hot market could easily trigger speculation, so authorities

should exert proper controls at a flexible pace to take account of changes in

the market, the report added. (Economic Information Daily)

--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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