MNI China Daily Summary: Monday, August 12

     POLICY: Maintaining reasonable growth in real estate investment doesn't

mean China intends to stimulate the property market, Sheng Songcheng, former

director of the Survey and Statistics Division of the People's Bank of China

(PBOC), wrote in an article in the China Business News. China must resolutely

stick to the principle of "housing is for living, not for speculating," Sheng

said. Housing prices are generally stable and a small decline won't have large

impact on growth, he said. It should create a stable expectation for prices,

which can help to smoothen market volatility, stabilize land prices, reduce

profit margins of speculation, and curb market speculation, he said.

     DATA: China's M2 expanded 8.1% y/y in July, the slowest in five months and

followed 8.5% in June. It was below 8.4% projected by an MNI survey. New loans

totalled CNY1.06 trillion, down from CNY1.66 trillion in June and was the least

in three months, missing the MNI projection of CNY1.3 trillion. Aggregate

financing to the economy rose CNY1.01 trillion from June's CNY2.26 trillion,

compared with the CNY1.5 trillion projection, hitting the lowest level in five

months since February.

     LIQUIDITY: The PBOC injected CNY30 billion via 7-day reverse repos,

resulting in a net injection of CNY30 billion as no reverse repos matured,

according to Wind Information. The reverse repo rate was kept unchanged at

2.55%, according to the PBOC's OMO trading announcement.

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

institutions (DR007) rose to 2.6614% from Friday's close of 2.6273%, Wind

Information showed. The overnight repo average increased to 2.6345% from

Friday's 2.5967%.

     YUAN: The yuan closed at 7.0679 against the U.S. dollar from Friday's close

of 7.0520. The PBOC set the dollar-yuan central parity rate above the 7 level

for a third trading day at 7.0211, compared with 7.0136 set last Friday.

     BONDS: The yield on the 10-year China Government Bond was last at 3.0300%,

up from Friday's close of 3.0200%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index rose 1.45% to 2,814.99. Hong

Kong's Hang Seng Index decreased 0.44% to 25,824.72.

     FROM THE PRESS: Allowing the yuan exchange rate to break the

psychologically important level of 7 against the U.S. dollar sends a clear

signal that currency fluctuation is not a decisive factor in China's monetary

policy, the China Securities Journal said in a front-page report. It is less

likely that China will adjust its monetary policy now that the yuan has released

some depreciation pressure, and while the bond spreads between China and other

countries remain large, the newspaper said.

     The PBOC needs not to follow interest rate cuts by other central banks

because its monetary policy is focused on the domestic economy, according to a

report in the Securities Daily. The PBOC is more likely to selectively reduce

the reserve requirement ratios than cutting rates, the newspaper said citing

analysts.

     China is expected to gradually replace the lending benchmark interest rate

with the Loan Prime Rate (LPR), the China Securities Journal reported citing

analysts. The comments followed the PBOC's Q2 monetary policy report, which said

that the LPR should play a leading role in the formation of real interest rates.

This requires the LPR mechanism to be further improved, and hence the one-year

LPR is likely to decline in the near term after stabilizing at 4.31% for more

than 16 months, 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$$$]