MNI China Daily Summary: Monday, August 7

     TOPS NEWS: A U.S.-China trade war shouldn't be an option and China isn't to

blame for Sino-U.S. trade imbalances, the People's Daily reported Monday. The

U.S.'s trade deficit with China results from international supply chains and the

U.S's low savings and high consumption, the report said. The U.S plans measures

against China's intellectual-property protection and unfair trade practices, and

this has created international worries of a trade war. China must react

accordingly if the U.S. launches a trade war, the report said. A war will affect

the worldwide economy -- not just the U.S. and China, the report said. (People's

Daily)

     TOP NEWS: The People's Bank of China injected CNY130 billion in seven-day

reverse repos and CNY120 billion in 14-day reverse repos via open-market

operations on Monday, Wind Information, a Shanghai-based financial data

provider, said. This resulted in a net drain of CNY60 billion for the day, as a

total of CNY310 billion in reverse repos matured Monday. Monday was the third

consecutive trading day the PBOC has drained liquidity at open-market

operations. The CFETS-ICAP money-market sentiment index ended at 32 on Friday,

compared with 33 at Thursday's close. The lower the reading, the better

liquidity conditions in the interbank market.

     TOP NEWS: Moody's Investors Service said Monday that China's efforts to

rein in credit growth and the shadow banking sector have shown some results, but

that government authorities were "engaged in a delicate balance" between

maintaining tighter credit and holding off financial instability. In the report,

"Quarterly China Shadow Banking Monitor," Moody's said the gap between overall

credit growth and the growth rate of nominal GDP had narrowed recently. It also

said the recent tightened liquidity conditions faced by banks were partially

offset by higher lending by the central bank. In addition, it said, financial

regulators are offering "grace periods" for the implementation of new

regulations.

     RATES: Money-market rates were mixed after the PBOC's open-market

operations resulted in a net drain of CNY60 billion for the day. The seven-day

repo average was last at 2.7793% Monday, compared with Friday's average of

2.7879%. The overnight repo average was at 2.7397%, compared with Friday's

2.6616%.

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

of China set a weaker daily fixing. The yuan was last at 6.7206 against the U.S.

unit, compared with the official closing price of 6.7181 on Friday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.7228 on Monday,

compared with Friday's 6.7132. It   was the weakest fixing since 6.7283 on July

31.

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

3.6717%, compared with the previous close of 3.8081%, according to Wind, a

financial-data provider.

     STOCKS: Stock prices were higher, led by gains in the steel and non-ferrous

metals sectors. The benchmark Shanghai Composite Index closed up 0.53% at

3,279.46 points. Hong Kong's Hang Seng Index was 0.44% higher at 27,687.78.

     FROM THE PRESS: The People's Bank of China will include systemically

important financial technology businesses in its macroprudential assessments,

according to its 2017 Report on China Regional Financial Operations, the

Financial News, a journal run by the PBOC, reported. Irregular operations and

disordered competition in fintech will cause risks, the report said. Regulators

will strengthen policy, improve regulations and encourage innovation and the

legal operation of fintech so it better serves the real economy, the report

said. Regulators will establish a unified and public platform to provide fintech

information, it said. (Financial News)

     Overregulation will restrain financial-sector development and curb the

competitiveness of the sector, the China Business News reported Friday, quoting

Guan Tao, a former head of the balance of payments division at the State

Administration of Foreign Exchange and now a research fellow with the 40Forum

research group. The underdevelopment of the financial sector is one of the main

problems in China and contributes to high funding costs, rising house prices and

a bearish stock market, Guan said. While focusing on preventing risks,

authorities should control regulatory strength, Guan said. (China Business News)

     Deposits at commercial banks in Tier One cities fell in the first half of

this year as a result of a reduction in corporate bond financing and deposits

from nonbanking institutions under pressure to deleverage, the 21st Century

Business Herald reported Monday. Meanwhile, company loans saw an increase. They

increased in Beijing at the fastest since 2014, and outstanding loans in

Shanghai rose by 4.3 percentage points compared with the end of 2016, the report

said. But the growth of mortgages in Tier One cities slowed as authorities try

to curb an overheating real estate sector, the report said. (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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