MNI China Daily Summary: Friday, July 19

     EXCLUSIVE: China may allow local governments to issue more special purpose

bonds to fund infrastructure in the second half should current stimulus fail to

boost growth, despite concerns by senior policymakers about the risks of growing

debt, government advisors told MNI. Beijing has authorized for this year a quota

of CNY2.15 trillion special bonds, to be repaid by returns on projects they fund

and do not appear in headline central government accounts. The slowing economy

may prompt officials to consider allowing local administrations to tap into

unused quotas from previous years, said Zhang Yiqun, the director of an

institute of fiscal studies affiliated with the finance department of Jilin

province, in Northeast China. 

     TRADE: China Vice Premier Liu He discussed furthering trade negotiations

with U.S. Trade Representative Robert Lighthizer and Secretary of Treasury

Steven Mnuchin by phone Thursday, joined by Chinese Minister of Commerce Zhong

Shan, the China Central Television reported today.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY100 billion via

7-day reverse repos, adding liquidity for a fourth straight day. This resulted

in a net injection of CNY100 billion as no reverse repos matured, according to

Wind Information. The injection aims to maintain the liquidity in the banking

system at a reasonable and ample level, the PBOC said. 

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

institutions (DR007) rose to 2.8324% from Thursday's close of 2.8056%, Wind

Information showed. The overnight repo average increased to 2.8283% from

Thursday's 2.7957%. 

     YUAN: The yuan weakened to 6.8765 against the dollar from Thursday's close

of 6.8750. The PBOC set the dollar-yuan central parity rate lower at 6.8635

today, compared with 6.8761 on Thursday. 

     BONDS: The yield on 10-year China Government Bond was last at 3.1550%, down

from the close of 3.1575 on Thursday, according to Wind Information. 

     STOCKS: The benchmark Shanghai Composite Index increased 0.79% to 2,924.20.

Hong Kong's Hang Seng Index rose 1.07% to 28,765.40. 

     FROM THE PRESS: The yuan has strong support and solid fundamentals to

remain stable in the long-term, said People's Daily in a front-page commentary.

The currency's previous volatility resulted from changes in the external

environment that affected market expectations, the daily said.  The yuan has

risen steadily against the dollar since mid-June, and will be given more two-way

flexibility, and China will not engage in competitive devaluation, the newspaper

said. 

     Chinese banks may tighten lending to private-sector companies due to

growing defaults in the past week, the 21st Century Business Herald reported

today. Citing an unnamed source at a small bank, the paper said they are only

allowed to lend to or provide bond financing service to private companies with a

crediting rating of AA+ or above, but in practice, few private companies will

get the approval, even with that rating. 

     The slowdown in property investment has spread in H1, with negative growth

seen not only in provinces across Middle and Western China, but provinces in the

Eastern China, including Guangdong and Shandong that are normally drivers of

growth, also saw a dip in H1, 21st Century Business Herald reported today.

Property investment is expected to decelerate further in H2 due to the tight

capital of developers and weak sales of commercial housing, the paper said

citing Shen Xin, researcher at the E-House Real Estate Research Institute. 

--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

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