MNI China Daily Summary: Friday, September 7

     TOP NEWS: The level of liquidity in China's interbank market fell in August

from July, according to MNI China Interbank Survey released today. The survey

reported the highest number of respondents since April who said liquidity

conditions worsened. About 38.9% traders responding to the survey said they

experienced tightening liquidity, the most since April. No traders gave such

response in July's survey. Liquidity remained ample though volatile in August.

However, there was increased rate volatility as the increased offering of local

government bonds absorbed liquidity and the People's Bank of China (PBOC) slowed

its injection of short-term funds.

     LIQUIDITY: The PBOC injected CNY176.5 billion via its medium-term lending

facilities (MLF) loans on Friday. It resulted in no change in liquidity

conditions today as the same amount of MLF loans matured, with no reverse repos

maturing, according to Wind Information. Liquidity remains unchanged this week,

without any net injection or drain. CFETS-ICAP money-market sentiment index

closed at 48 on Thursday, up from 43 on Wednesday.

     YUAN: The yuan fell to 6.8375 against the dollar from Thursday's closing of

6.8307. Earlier today, the PBOC set the yuan central parity rate at 6.8212 on

Friday, stronger than Thursday's 6.8217, making it the third trading day with a

stronger fixing out of five this week.

     MONEY MARKET RATES: The benchmark seven-day deposit repo average rose to

2.6754% on Friday from 2.6027% yesterday, while overnight average jumped to

2.5878% from 2.4929%: Wind Information.

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

3.6400%, up from Thursday's close of 3.6250, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 0.40% higher 2,702.30. Hong

Kong's Hang Seng Index rose 0.06% to 26,992.26.

     FROM THE PRESS: Chinese commercial banks are boosting capital faced with

liquidity pressure, China Securities Journal reported. Within a week, Tier-2

capital bonds issued by commercial banks exceeded CNY90 billion, the newspaper

said. The increase in capital bonds is due to the government's stricter

regulation requiring banks to move off-balance-sheet businesses back to the

balance sheet.  China's recent easing policies are also pressuring banks to

increase lending, the report said, citing an analysis by Everbright Securities.

Supply of banks' capital bonds are expected to increase within this year, the

report said, citing analysts.

     Chinese property developers are facing tighter financing despite increased

bond issuances, the 21st Century Business Herald reported. Property companies of

different sizes vowed to deleverage and seek cash returns at their half-year

result conferences this year, the newspaper said. Several companies predict

financing costs will continue to rise over the rest of the year, the report

said. Chinese banks are following the central government's policy to strictly

control credit flowing to the property market, which is weighing down

development of the sector, the newspaper said, citing a bank manager. Developers

issued CNY25.1 billion and CNY16.7 billion bonds onshore in July and August

respectively, higher than CNY11.1 billion in June.

     The central government is encouraging private capital to invest in the

infrastructure of China's western provinces, Economic Information Daily

reported. The State Council has dispatched officials to closely monitor and

guide development projects in the western areas, the newspaper said. Around 13

western provinces, including Ningxia, Sichuan, Yunnan, Shaanxi, Qinghai,

Xinjiang and Guangxi, are speeding up investment on large infrastructure

projects, with some governments specifically setting up faster approvals, the

report said. Highways, railways, private airlines, water improvement and energy

are the major focuses of these projects, it said. Governments are issuing

various policies to attract private capital -- for example, Ningxia is planning

to announce a negative list for private investment to clear up the previously

hidden barriers for private investors.

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

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

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