MNI China Daily Summary: Monday, August 14

     TOP NEWS: U.S. officials confirmed Saturday that the U.S. will announce

Monday an investigation into China's trade practices on intellectual property

rights and "forced technology transfer", according to both Chinese and American

media sources. Reuters cited U.S. officials saying in a conference call that the

decision was not related to the North Korea problem. On the Chinese side, Bai

Ming, vice chairman of international market research department under the

Chinese Academy of International Trade and Economic Cooperation at the Ministry

of Commerce told the Securities Daily the U.S. is very likely to try to

demonstrate its deterrence but would also balance the benefits and disadvantages

of its trade action because the U.S. does not want to "give up on the Chinese

market which is growing continuously." He also expects the U.S. will change its

attitude frequently during the process.

     TOP News: Chinese economic data for July showed the economy slowing, with

growth in industrial production, retail sales and fixed-asset investment all

below expectations and below rates in June.  

     DATA: China's industrial output rose 6.4% year-on-year in July, much lower

than the 7.6% year-on-year increase in June. The July result was below the MNI

survey median forecast for a 7.0% rise. Output rose 0.41% month-on-month in

July, a sharp slowdown from the gain of 0.79% m/m in June.

     DATA: Retail sales grew 10.4% in July to CNY2.96 trillion, the lowest since

the January-February period. It was lower than the MNI survey median forecast

for a 10.7% gain and slower than the 11.0% growth rate in June. On a

month-over-month basis, retail sales rose 0.73% in July, down from the gain of

0.91% in June.

     DATA: Fixed-asset investment rose 8.3% year-over-year in the first seven

months of 2017, slowing from the 8.6% gain posted in the January-to-June period.

The January-to-July figure was lower than the MNI survey median for a 8.6%

increase. On a month-over-month basis, fixed-asset investment rose 0.61% in

July, down from the gain of 0.68% in June.

     DATA: China property investment growth cooled in July, with the

year-to-date growth rate slowing to the lowest so far this year. Property

investment grew 7.9% year-on-year to CNY5.9761 trillion in the January to July

period, with the growth rate down from 8.5% in the first six months. Both

property sales and revenue decelerated in July.

     POLICY: The People's Bank of China said late Friday night it will maintain

its current "prudent and neutral" monetary policy to provide a neutral and

reasonable financial environment for supply-side reform, according to its second

quarter monetary policy report. The PBOC will start to include negotiable

certificates of deposit (NCDs) with durations of less than one year issued by

banks with assets of more than CNY500 billion as part of its tests of the

soundness of interbank liabilities in the MPAs starting in the first quarter of

2018. The treatment of other NCDs has not yet been determined.

     RATES: Money market rates were mixed on Monday after liquidity was

unchanged as the PBOC's injection of CNY210 billion via its open-market

operations balanced out the same amount of maturing securities. The seven-day

repo average was last at 2.8761%, up from Friday's average of 2.8373%. The

overnight repo average was at 2.7495%, compared with Friday's 2.7632%.

     YUAN: The yuan rose against the U.S. dollar Monday after the People's Bank

of China set a stronger daily fixing. The yuan was last at 6.6606 against the

U.S. unit, 0.10% stronger compared with the official closing price of 6.6668 on

Friday. The People's Bank of China set the yuan central parity rate against the

U.S. dollar at 6.6601 Monday, stronger than Friday's 6.6642. PBOC has set the

fixing higher for five straight trading days and today's fixing is the highest

since Sept. 22 last year.

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

3.5830%, down from the previous close of 3.6478%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, leading higher by the computer and computer

applications sectors. The benchmark Shanghai Composite Index close up 0.9% at

3,237.36. Hong Kong's Hang Seng Index was 1.26% higher at 27,222.39. 

     FROM THE PRESS: The People's Bank of China aims to tighten controls on

negotiable certificates of deposit (NCDs), the issuance of which has skyrocketed

in recent years, in order to rein in financial risks, Economic Information Daily

reported Monday. The central bank announced Friday that it would include NCDs

with durations of less than one year issued by banks with assets of more than

CNY500 million in its quarterly macro-prudential assessment of banks' operating

conditions. The newspaper's front-page report cited Xu Chengyuan, chief analyst

at China Orient Asset Management Co. Ltd, as saying the fact that the PBOC would

add these NCDs to its MPA from the first quarter of 2018 leaves "buffer time"

for the 35 banks whose NCDs fall within the PBOC examination criteria to adjust

and so would avoid major fluctuation in the market. Xu also noted the measure is

only the first step in tightening supervision of NCDs, with financial regulators

continuing to create and implement new policies based on market developments.

(Economic Information Daily)

     The yuan rose significantly last week and will continue its "two-way

fluctuation" as depreciation expectations continue to fade, the Securities Daily

reported Monday. Li Huiyong, chief analyst of Shenwan Hongyuan Securities, told

the newspaper Sunday the CFETS index has risen to 93.8 as of Thursday, higher

than the year-to-date average level. Li said the U.S. dollar still has room to

appreciate given the U.S. economy is expected to report robust growth. China's

economic growth is stable, and with the new counter-cyclical factor added to the

People's Bank of China's calculation of the daily yuan parity, the yuan would

continue to show "two-way" fluctuation, the newspaper said. (Securities Daily)

     China needs to speed up formation of a sustainable system for developing

the property market, the People's Daily reported Monday. Such a system is

essential for the stable transformation of the country's economy, the newspaper

said, noting that the last financial crisis were caused by a bursting of a

property market bubble. With a high proportion of housing sales due to

speculation, high housing inventories and high leverage ratios, the current

situation requires China to continue to rein in surging housing prices and

tackle potential risks. (People's Daily)

     The Financial News, a newspaper run by the People's Bank of China, stressed

Monday the need to maintain stability while China takes measures in managing the

rising level of local government debt. Participants in the market widely support

the strengthening of controls on local debt levels, but the process needs to

maintain stability as it is the main theme of financial regulation in the

country now, the newspaper said in a front-page report. China faces pressure

from an economic slowdown and local governments are facing difficulties

maintaining the high fiscal income levels needed for debt service as their

economic growth inevitably ends its "abnormal growth period." (Financial News)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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