MNI China Daily Summary: Friday, July 26

     EXCLUSIVE: China's drive to power infrastructure spending to buoy the

economy will run up against constraints including a lack of funds and the

backlog of delayed existing projects, government advisors told MNI. "There won't

be a significant recovery in infrastructure investment," said Zhang Yongjun,

deputy chief economist at the China Centre for International Economic Exchange,

a high-level think tank. "The strength shown by property investment so far this

year, and the moderate pickup of manufacturing investment may play a more

important role in helping to achieve the annual growth target of 6-6.5%."

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMOs) for a fourth day, leaving liquidity unchanged as no reverse repos

matured, according to Wind Information. The liquidity in the banking system is

at a reasonable and ample level, after the central bank made CNY100 billion of

Treasury cash deposits at commercial banks to offset maturing reverse repos, the

PBOC said.

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

institutions (DR007) rose to 2.6389% from Thursday's close of 2.6350%, Wind

Information showed. The overnight repo average decreased to 2.6256% from

Thursday's 2.6272%. 

     YUAN: The yuan weakened to 6.8798 against the dollar from Thursday's close

of 6.8750. The PBOC set set the dollar-yuan central parity rate higher at 6.8796

today, compared with 6.8737 on Thursday.

     BONDS: The yield on 10-year China Government Bond was last at 3.1650%, up

from the close of 3.1625% on Thursday, according to Wind Information. 

     STOCKS: The benchmark Shanghai Composite Index increased 0.24% to 2,944.54.

Hong Kong's Hang Seng Index fell 0.69% to 28,397.74. 

     FROM THE PRESS: China will continue to investigate FedEx Corp. after

finding further possible violations by the company while investing the firm's

failure to deliver Huawei Technology's parcels to designated addresses in China,

Xinhua News Agency reported. FedEx is also suspected of holding more than 100

parcels sent by Huawei to enter China, Xinhua said. The investigation found that

FedEx's earlier statement claiming Huawei packages had been "misrouted in error"

was inconsistent with facts, Xinhua reported.

     China must strengthen its financial supply capacity in order to lower

interest rates, said the 21st Century Business Herald in a commentary today.

Banks must diversify its asset-backed lending model and improve new financing

methods including trade financing, the newspaper said. It is also necessary to

free restrictions on city and rural commercial banks and allow them to operate

across regions and participate in the inter-bank lending market, the newspaper

said. Banks' business models should not be limited by regions, but by their cash

assets, the paper added.

     The widening spread between Chinese government bonds and the U.S. Treasury

bonds is attracting more foreign funds to flow into Chinese bond market, the

China Securities Journal said. The move comes as several market sources expect

the U.S. Federal Reserve to cut rates by 25bps next week, the newspaper said.

Foreign investors fear losing opportunities if they don't enter the Chinese bond

market at this time, the newspaper said.

--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$$$]