MNI China Daily Summary: Friday, September 8

     TOP NEWS: China's General Administration of Customs released August trade

data. Exports increased 5.5% year-on-year in August in U.S. dollar terms, lower

than MNI's survey median forecast for a 6.8% y/y gain and below the growth rate

of 7.2% in July. Export growth was the lowest since March, and it has slowed for

three straight months. Imports rose 13.3% year-on-year in August in U.S. dollar

terms, higher than the MNI survey median forecast for a 10.0% y/y gain and above

the 11.0% rise in July. Imports rose for the 10th month in a row. China posted a

$41.99 billion trade surplus in August, lower than the MNI survey median

forecast for a $48.50 billion surplus and below July's $46.74 billion surplus.

     LIQUIDITY: The People's Bank of China skipped open-market operations on

Friday. The PBOC said on its official website that the banking system's

liquidity condition was at a "relatively high" level. This resulted in a net

zero injection/drain for the day. No reverse repos matured on Friday. The PBOC

drained a total of CNY330 billion via reverse repos this week. Taking into

account medium-term lending facilities (MLFs), the PBOC has drained a total of

CNY201.5 billion this week. The CFETS-ICAP money-market sentiment index ended at

41 on Thursday -- slightly down from 42 at Wednesday's close. The lower the

reading, the better the liquidity conditions in the interbank market.

     DATA: Passenger vehicle sales in August rose 6% y/y and 12% m/m to 1.87

million, while they were up 2% in the January-August period, according to a

report released Friday by the China Passenger Car Association. The CPCA said

third-quarter momentum in sales was picking up due to the resumption of schools

and the further structural improvement of the real economy. The report noted

that new-energy cars would be the next "blue ocean" -- a new market segment that

could drive robust growth.

     RATES: Money market rates were mixed after the PBOC skipped injecting

liquidity via open-market operations, which resulted in zero injection/drain.

The seven-day repo average was last at 2.8242% on Friday, higher than Thursday's

average of 2.8241%. The overnight repo average was at 2.5971%, lower than

Thursday's 2.6116%.

     RATES: The Ministry of Finance sold CNY10 billion in 182-day treasury bills

at a yield of 3.3395% in an auction on Friday. The yield was higher than the

3.3154% for bonds with the same maturity in the secondary market on Thursday.

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

at a yield of 2.9683% in an auction on Friday. The yield was lower than the

3.0048% for bonds with the same maturity in the secondary market on Thursday.

     YUAN: The yuan surged against the U.S. dollar after the People's Bank of

China set a stronger daily fixing and the dollar index continued to fall. The

yuan was last at 6.4504 against the U.S. unit, compared with the official

closing price of 6.4972 on Thursday. The PBOC set the yuan central parity rate

against the U.S. dollar at 6.5032 on Friday, stronger than Thursday's 6.5269.

The PBOC has set the fixing stronger for 10 straight trading days, and today's

fixing was the highest since May 12 last year.

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

3.5762%, down from the previous close of 3.5858%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by the high-technology sector. The

benchmark Shanghai Composite Index closed down 0.01% at 3,365.24. Hong Kong's

Hang Seng Index was 0.45% higher at 27,647.21.

     FROM THE PRESS: The People's Bank of China is likely to rely on its

medium-term lending facility (MLF) to deal with liquidity volatility this year,

so the possibility for a cut to the reserve requirement ratio will be slim, the

Securities Daily said in a commentary Friday. Since the second quarter, the PBOC

has conducted MLF operations at least once a month, the newspaper said, noting

that outstanding MLFs increased by CNY881.7 billion in the first eight months of

this year. The PBOC might carry out another MLF operation this month because of

increased capital demand before the National Day holiday the first week of

October, the newspaper argued. (Securities Daily)

     New liability for Chinese joint-stock banks sharply decreased in the first

half of the year because of strict regulation of interbank activity, the 21st

Century Business Herald reported Friday. The newly added liabilities of eight

joint-stock banks whose stocks trade as A-shares stood at CNY281.3 billion,

compared with the CNY5.5 trillion in the same period last year, while new

interbank liabilities dropped by CNY1.1 trillion. Many banks have started to

turn to deposits but have had trouble competing for those against the big

state-owned banks. With the People's Bank of China focused on a tighter balance,

money market rates will rise further, putting pressure on banks' liability

costs, the newspaper argued. (21st Century Business Herald)

     China is planning to encourage foreign investors to participate in the

mixed ownership of state-owned enterprises as it overhauls the ownership system,

the Economic Information Daily reported Friday. The authorities are considering

policies to simplify processes and relax restrictions on introducing foreign

capital, the newspaper said, citing unidentified people with knowledge of the

plans. Some local governments are also considering how to optimize changes to

the SOE system and bolster the vitality of those businesses. (Economic

Information Daily)

     The Chinese property market maintained good momentum in the first six

months of this year, according to the half-year reports of listed real estate

companies, the 21st Century Business Herald reported Friday. The result was an

increase in inventories for the companies, with the value of inventories

reaching CNY3.92 trillion, rising 10% compared with the same period last year.

The companies are making efforts to destock, and predict that house prices will

fall, the newspaper noted. (21st Century Business Herald)

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

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

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