MNI China Daily Summary: Friday, August 3

     TOP NEWS: China's real lending rates may drop in the next two months after

the People's Bank of China (PBOC) eased credit controls and encouraged banks to

lend more to small businesses, sources close to policymakers told MNI.

     POLICY: China's Ministry of Commerce said it will "properly" handle

economic and trade frictions with the U.S., according to a statement on its

website capping a meeting on Thursday of its Communist Party chapter's top

cadres, including Chinese ambassador to the World Trade Organization.

     POLICY: China will continue to deepen forex management and reform and

further open up the market in the second half of the year, according to a

statement from State Administration of Foreign Exchange (SAFE). China will

further elevate the level of trade and investment liberalization and protect

foreign enterprises' legal rights, SAFE said. China will safeguard the safety,

liquidity and appreciation of forex and prevent the risk of cross-border capital

flows, SAFE added.

     POLICY: BNP Paribas believe that evidence has mounted that China's "tighter

policy mix is weighing on growth while trade tensions raise the levels of

uncertainty. As a result, comments from the State Council & Central Politburo

have marked a significant shift in policy, arguing in favour of a more

coordinated approach in both fiscal & monetary policy, to support economic

growth.

     LIQUIDITY: PBOC drained net CNY210 billion via reverse repos this week. The

PBOC skipped open market operations today and has not conducted OMO for eleven

days. No reverse repos matured today. CFETS-ICAP's money-market sentiment index

closed at 27 on Thursday, down from 28 on Wednesday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.3898% on

Friday from 2.4212% on Thursday; Overnight average decreased to 1.8259% from

1.9380% on Friday: Wind Information.

     YUAN: The yuan weakened to 6.8571 against the dollar on Friday from

yesterday's 6.8300 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.8322, weaker than Thursday's 6.7942. Today's drop

is the second largest daily decline in 11 trading days. 

     BONDS: The yield on benchmark 10-year China Government Bond was last at

3.4500%, down from the previous close of 3.4700%, according to Wind Information.

     STOCKS: Shares in Shanghai declined sharply for a third day. Shanghai

Composite Index closed 1% lower to 2,740.44, led by liquor shares. Hong Kong's

Hang Seng Index decreased 0.23% to 27,651.82. 

     FROM THE PRESS: The yuan will continue to fluctuate between 6.7 and 6.9 in

the second half of the year but is unlikely to break the 7.0 level, China

Securities Journal reported, citing experts, including Chen Xiao, an analyst at

Ping An Securities. Large capital outflows are unlikely to happen while the

yuan's rapid depreciation helps to release the negative pressure of China and

the U.S. economic divergence, Chen said, according to the newspaper. 7.0 is most

likely to be the bottom of this round of depreciation as breaking the 7.0 level

might lead to expectations of continuous depreciation and capital outflow, the

newspaper said, citing Ming Ming, chief analyst of Citic Securities.

     The Donald Trump administration didn't show respect and sincerity for

negotiation, so China should be prepared for a long-lasting trade war, the 21st

Century Business Herald reported, citing Tu Xinquan, China Institute for WTO

Studies. China is able to bear the impact from the 25% tariff levied on all the

Chinese exports, the newspaper said, citing a report by Tsinghua University. The

new list of Chinese goods targeted by the U.S. focuses on intermediate products,

which will increase the costs of goods for American consumers, Tu said,

according to the newspaper.

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

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

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