MNI China Daily Summary: Monday, July 29

     TOP NEWS: Some western politicians seek to stir instabilities in Hong Kong

and turn the current protests into troubles for China and drag down China's

development, Yang Guang, a spokesman of the Hong Kong and Macao Affairs Office

of China's State Council, said at a press briefing today. Such effort won't

succeed, he added. The paramount tasks for Hong Kong are to punish violent and

criminal acts, which "seriously crossed" the bottom line under the "One Country,

Two Systems" , and restore order, Xu Luying, another spokesperson on HK affairs,

said at the same briefing. Yang reiterated support for the government led by

Carrie Lam, the embattled Chief Executive, and urged Hong Kong society to "step

away from political conflicts" and concentrate on developing its economy and

welfare.

     EXCLUSIVE: China will refrain from significant additional stimulus in the

second half of 2019, to save fiscal and monetary ammunition for what may be an

even tougher year in 2020, but authorities will allow companies to accelerate

borrowing to counter the economic headwinds, government policy advisors told

MNI. Already-announced stimulus measures should be sufficient to keep growth in

gross domestic product within its targeted range, the advisors said, adding that

when the deliberations of the quarterly politburo meeting are revealed at the

end of the month, they are unlikely to deviate much from previous commitments to

stabilise the economy. The authorities will continue efforts of reaching balance

between stabilizing economy and preventing financial risks, which means the

regulation on some key sectors, such as property market and local government

debt raising behaviours, won't be shifted, the advisors said.

     POLICY: China encourages foreign investors to become a shareholder of

domestic asset management companies(AMCs) conducting debt-to-equity swaps, the

National Development and Reform Commission said in a statement on its website

outlining measures for reducing leverage. Commercial banks that set up AMCs

should help AMCs play a key role in promoting debt-to-equity swaps by end of

September this year, the NDRC said.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMOs) for a fifth day, resulting in a net drain of CNY50 billion after the

maturity of reverse repos, according to Wind Information. The increased fiscal

spending at month-end can offset local government bond issuance and the maturity

of reverse repos, said the PBOC. The liquidity in the banking system is at a

reasonable and ample level, the PBOC said.

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

institutions (DR007) rose to 2.6579% from Friday's close of 2.6389%, Wind

Information showed. The overnight repo average decreased to 2.6234% from

Friday's 2.6255%.

     YUAN: The yuan weakened to 6.8920 from Friday's close of 6.8798. The PBOC

set the dollar-yuan central parity rate weaker at 6.8821, compared with 6.8796

last Friday.

     BONDS: The yield on the 10-year China Government Bond was last at 3.1820%,

up from Friday's close of 3.1650%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index edged down 0.12% to

2,941.01. Hong Kong's Hang Seng Index decreased 1.03% to 28,106.41.

     FROM THE PRESS: Millions of tons of U.S. soybeans have been shipped to

China since the Xi-Trump G20 Summit in Osaka, an apparent sign of goodwill

before this week's trade talks in Shanghai, Xinhua News Agency said in a

commentary on Sunday. China will continue to purchase more U.S. agricultural

products, while also urging the U.S. to take stronger actions to promote the

trade talks, Xinhua said.

     The PBOC's defense of the yuan at 7 against the U.S. dollar may introduce a

moral hazard of having an implicitly guaranteed level of exchange rate, Guan

Tao, a former official at the State Administration of Foreign Exchange, wrote in

China Money, a PBOC-run magazine. Since the PBOC reformed the yuan's central

parity mechanism in August 2015, it has defended the 7:1 level for a third time,

which may cause some companies to be complacent rather than actively using

derivatives tools to manage currency risks, Guan said.

     China is expected to use fiscal policy to drive growth in the second half

of the year, China Securities Journal reported today. Citing several analysts,

the journal said that previous tax and fee cuts should be implemented more

effectively, and the government may expand the quota of local government special

bond from the current CNY2.15 trillion. Another active measure could be to

promote the use of public-private partnerships, the newspaper said.

     The slowing Chinese economy isn't likely to rebound to prior peaks, said

Jiang Xiaojuan, Deputy Secretary-General of the State Council at a forum on

Sunday, according to an online publication by the School of Public & Management

at Tsinghua University. The government uses 6% as the lower limit of growth this

year, suggesting it will be difficult to maintain a higher speed, said Jiang. 

     China's first-half output of pig iron, crude steel and steel products rose

7.9%, 9.9% and 11.4% y/y to 404 million tons, 492 million tons and 587 million

tons, respectively, due to rising demand, the China Securities Journal reported

citing data by the China Iron and Steel Association.

--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

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