MNI China Daily Summary: Friday, August 2

     EXCLUSIVE: The People's Bank of China (PBOC) is unlikely to follow the lead

of the U.S. Federal Reserve and make a rate cut, but concentrate on

market-orientated reform of its interest rate regime, and maintaining the

stability of the yuan as the dollar strengthens, government advisors and former

officials told MNI. "It is too early for us to follow the Fed's move and reform

is at this time more important than stimulus," said Guan Tao, a former Director

General of Balance of Payments at the State Administration of Foreign Exchange,

adding that markets should watch carefully how the central bank attempts to

integrate market interest rates with its benchmark lending rate. Guan also

expected volatility ahead for the yuan, as difficult trade talks with the U.S.

drag on. 

TRADE: China will take necessary countermeasures to "resolutely defend the core

interests of the country and the people" should the U.S. proceed to hike 10%

tariff on $300 billion worth Chinese goods, with the U.S. responsible for all

consequences, China's Ministry of Commerce said on its website today.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a ninth

straight day, leaving liquidity unchanged as no reverse repos matured, according

to Wind Information. Liquidity in the banking system is reasonable and ample,

the PBOC said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.6355% from Thursday's close of 2.5878%, Wind

Information showed. The overnight repo average decreased to 2.6027% from

Thursday's 2.6329%. 

     YUAN: The yuan weakened to 6.9416 against the dollar from Thursday's close

of 6.9023. The PBOC set the dollar-yuan central parity rate higher at 6.8996

today, compared with 6.8938 on Thursday.

     BONDS: The yield on 10-year China Government Bond was last at 3.0875%, down

from the close of 3.1430% on Thursday, according to Wind Information. 

     STOCKS: The benchmark Shanghai Composite Index decreased 1.41% to 2,867.84.

Hong Kong's Hang Seng Index fell 2.35% to 26,918.58. 

     FROM THE PRESS: The Fed's rate cut isn't a decisive factor for China's

central bank to ease monetary policy, Xinhua News Agency reported late Thursday,

citing an unnamed PBOC official. China's benchmark lending rate is relatively

low, and the liquidity remains reasonably abundant, so targeted easing will

still be the keyword for monetary policies, the official said according to

Xinhua.

     The PBOC will keep liquidity ample and interest rates stable by continuing

with a prudent monetary policy and adjust it timely based on changes in domestic

economy and prices, the China Central Television reported late Thursday citing

Sun Guofeng, the director of PBOC monetary policy department. 

     Property developers may actively push for inventory sales to meet repayment

obligations as more corporate bonds mature in the second half, the China

Securities Journal reported citing analysts. Developers may have difficulty

obtaining financing as the PBOC tightens funds available to them, the journal

said. Consumer loans are also forbidden for home purchasing, the CSJ notes. 

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]