MNI China Daily Summary: Monday, August 27

     BEIJING (MNI) - TOP NEWS: Combined profits made by China's industrial

companies from January to July rose 17.1% from the same period a year ago to

CNY3.90 trillion, the National Bureau of Statistics reported on Monday. This and

the increase of 17.2% y/y in Jan-Jun mark the two highest increases so far in

2018. Industrial profits for July rose by 16.2% y/y to CNY515.12 billion,

slowing down from the 20.0% y/y growth recorded in June. 

     LIQUIDITY: The PBOC skipped open market operations (OMO) on Monday, stating

on its website that steady increase of month-end fiscal expenses and central

treasury deposits can offset the liquidity drain due to local government bond

issuance and reverse repo maturities. The move resulted in net drain of CNY120

billion as the same amount of reverse repos matured today. The PBOC injected net

CNY59 billion via its MLF loans last Friday. CFETS-ICAP's money-market sentiment

index closed at 30 on Friday, down from 32 on Thursday.

     YUAN: The yuan slid to 6.8210 against the U.S. dollar from Friday's closing

of 6.8171. Earlier today, the PBOC set the yuan central parity rate at 6.8508 on

Monday, much stronger than last Friday's 6.8710. Today's rise is the second

biggest daily jump in the last 17 trading days. 

     MONEY MARKET RATES: The benchmark 7-day deposit repo average rose to

2.6375% on Monday from 2.5776% on Friday; the overnight average increased to

2.4202% from 2.3728% on Friday: Wind Information. 

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

3.6300%, according to Wind Information. 

     STOCKS: Shares in Shanghai rose. The Shanghai Composite Index closed 1.89%

higher at 2780.90. Hong Kong's Hang Seng Index rose by 2.17% to 28,271.27. 

     FROM THE PRESS: Various Chinese provinces are expected to announce new

infrastructure investment lists, 21st Century Business Herald reported. The

total investment of the announced development projects of western provinces,

including railway construction and water diversion projects, will reach USD500

billion, noted the Herald. Civil aviation and other projects into which the

government encourages private capital investment will see roughly another USD500

billion in investment, noted the paper. How local governments and private

companies can speed up reform and attract capital will be key for these

infrastructure investment projects, the paper commented. 

     The Chinese government will adjust its monetary policies and OMO operations

to ensure local government bonds are issued successfully, China Securities

Journal reported. On Friday, the PBOC injected MLF into the market for the

purpose of coordinating monetary policy and fiscal policy. In the coming weeks,

the PBOC may further conduct OMO injections to provide enough liquidity for

banks which are majority entities to buy local government bonds, the newspaper

said. 

**COMMENTS: The increase of local government bond issuance aims to support

infrastructure investment, thus buoying economic growth. For this purpose, the

PBOC will need to adjust OMO actions and its monetary policy to balance

liquidity in the market while large amounts of local government bonds are

issued.

     China will require local governments to balance cash handouts with building

houses through shantytown renovation projects, which boosts property investment

growth, the official People's Daily reported. In the first half of 2018, China

finished rebuilding 3.63 million urban slums -- 62.5% of the target to rebuild

5.8 million urban slums this year, the newspaper said. The State Council plans

to advance the renewals of another 15 million houses from 2018 to 2020, the

report said. The country's property regulator requires local governments to give

cash where the local property market has excess property inventory, and also

requires them to rebuild houses where the property market is already hot and

housing prices are rising, the newspaper said.

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

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