MNI China Daily Summary: Friday, August 4

     TOPS NEWS: China's regulators need to control the strength of deleveraging

while the economy still faces downturn pressures due to the deteriorating real

estate sector and uncertain global market, the People's Daily said in a

commentary on Friday, citing Lian Ping, the chief economist of Bank of

Communications. Regulators should focus on the structure of leverage, given the

high leverage ratio of the non-financial sector, Lian noted. He also warned that

the leverage ratio of state-owned enterprises -- particularly so-called zombie

companies -- is much higher than private enterprises. Although interbank and

off-balance-sheet transactions in the financial sector have expanded rapidly,

the effects of the government's deleveraging campaign can be seen, as both

interbank assets and liabilities have had clear shrinkage, Lian added. (People's

Daily)

     TOP NEWS: The People's Bank of China injected CNY90 billion in seven-day

reverse repos and CNY30 billion in 14-day reverse repos via open-market

operations Friday, Wind Information, a Shanghai-based financial data provider,

said. This resulted in a net drain of CNY20 billion for the day, as a total of

CNY140 billion in reverse repos matured on Friday. The PBOC has drained a total

of CNY40 billion at its open-market operations this week. The CFETS-ICAP

money-market sentiment index ended at 33 on Thursday, compared with 38 at

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

interbank market.

     RATES: Money market rates were down on Friday. The seven-day repo average

was last at 2.7839% Friday, lower than Thursday's average of 2.8754%. The

overnight repo average was at 2.6697%, lower than Thursday's 2.7819%.

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

at a yield of 2.9239% in an auction on Friday. The yield was lower than 2.9574%

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

     YUAN: The yuan rose against the U.S. dollar Friday after the People's Bank

of China set a stronger daily fixing. The yuan was last at 6.7187 against the

U.S. unit, 0.07% stronger than the official closing price of 6.7233 on Thursday.

The People's Bank of China set the yuan central parity rate against the U.S.

dollar at 6.7132 on Friday, compared with Thursday's 6.7211. Friday's fixing was

the strongest since Oct. 11, when it was 6.7098.

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

3.7964%, up from the previous close of 3.7215%, according to Wind, a financial

data provider.

     STOCKS: Stocks fell on Friday, led lower by the coal and non-ferrous metal

sectors. The benchmark Shanghai Composite Index closed 0.33% lower at 3,262.08.

Hong Kong's Hang Seng Index was 0.03% higher at 27,540.53.

     FROM THE PRESS: The net drain in liquidity that occurred over the last two

days via the central bank's open market-operations does not mean its "neither

tight nor loose" monetary policy has changed, the Financial News, a journal run

by the People's Bank of China, reported Friday, citing analysts. Liquidity

pressure in August will be less than it was in July, given greater fiscal

expenditures and fewer tax payments by corporations, the report said, adding

that falling demand for foreign exchange purchases will also contribute to the

stable liquidity situation. The strengthening yuan exchange rate is a positive

influence on liquidity, the report noted. (Financial News)

     Shanghai and Beijing are leading the way in changes to spending patterns,

with consumer spending now more geared toward "development and enjoyment" rather

than toward daily living expenses, as consumption increasingly contributes a

larger share to China's GDP, the 21st Century Business Herald reported Friday.

According to the newspaper, the top 10 cities in terms of consumption are

Shanghai, Beijing, Guangzhou, Chongqing, Chengdu, Wuhan, Tianjin, Shenzhen,

Nanjing and Hangzhou. The development of the internet and mobile communications

has resulted in different methods of consumption in Shanghai and Beijing --

creating new business models and opportunities. Guangzhou maintains its strength

as a commercial and trade capital, the newspaper said. Central and western

China, where Chengdu and Wuhan are located, enjoy fewer "pressures" compared

with Beijing, Shanghai, Guangzhou and Shenzhen, and with strong purchasing

power, they are also the main battlefield for consumption upgrades. (21st

Century Business Herald)

     The exchange rates of significant world currencies appear to be returning

to levels seen earlier and will enter an "adjustment and stabilizing period,"

the Economic Information Daily, a newspaper under Xinhua News Agency, said in a

Friday front-page commentary. The foreign-exchange market has digested the

effects of black-swan events such as Brexit and Donald Trump's victory in the

U.S. election, the commentary said, and the U.S. dollar has fallen 10% compared

with its high point over the past 12 months. The sterling and euro have

strengthened, and the trend of the yuan is balanced, it said. The dollar's

depreciation can be regarded as a "self examination" by the foreign-exchange

market and a correction of an overestimation of the spillover effects of the

U.S. Federal Reserve's interest-rate rise and Trump's fiscal reforms, the

commentary said. Since the start of this year China's foreign-exchange market

has been smooth, the yuan exchange rate is balanced and the economy has remained

resilient with potential. Strong fundamentals will continue to support a stable

yuan in the international currency system, the commentary said. (Economic

Information Daily)

     Steadily reducing banks' reliance on local-government bond sales is

important, the Securities Times said Friday in a front-page commentary. Since

July, China has been experimenting with allowing individual investors to

purchase local-government bonds directly -- this can disperse risks for the

banking system, the commentary said. However, it added, the main buyers of these

bonds are still commercial banks -- which means the capital source is still

banks. A better system to meet the capital needs of local governments is

important to China's future economic growth and stability, the newspaper said.

It also recommended increasing transparency of local-government financing and

making full use of market forces. (The Securities Times)

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

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

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