MNI China Daily Summary: Monday, July 30

     TOP NEWS: Chinese government advisors told MNI that the establishment of a

US-EU-Japan trade pact is a likely scenario, which could undermine China's trade

strength, making it even more important for the Asian country to cultivate

allies and pursue a more flexible approach. 

     TOP NEWS: China's limited fiscal space precludes the implementation of

large tax reductions or big government expenditures to stimulate the economy. As

such, an easing of the government's regulatory drive would be a better option

for tackling tight credit conditions, said Zhao Quanhou, director of the

financial research office at the Chinese Academy of Fiscal Sciences, a think

tank run by the Ministry of Finance.

     LIQUIDITY: The People's Bank of China (PBOC) net drained CNY130 billion by

the maturity of its reverse repos, according to a statement on its website. The

PBOC did not conduct open market operations today, citing that large fiscal

expenditure at the end of the month will offset the impact of maturing reverse

repos and maintain liquidity at a high level. There will be a total of CNY210

billion in reverse repos maturing this week. CFETS-ICAP's money-market sentiment

index closed at 29 on Friday, down from 30 on Thursday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.6268% on

Monday from 2.6237% on Friday; Overnight average decreased to 2.1734% from

2.2486% on Friday: Wind Information.

     YUAN: The yuan rose to 6.8159 against the U.S. dollar on Monday from

Friday's 6.8246 closing, despite of today's weaker fixing. The PBOC set the yuan

central parity rate at 6.8131, weaker than Friday's 6.7942. Today's parity is

the lowest since Jun 27, 2017. USDCNH has registered a fresh session high, just

shy of CNH6.8500. The move will have been aided by press reports pointing to

capital outflow pressures on the currency, and speculation mounting the

possibility of further RRR cuts. 

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

3.5200%, unchanged from the previous close, according to Wind Information.

     STOCKS: Shanghai Composite Index fell 0.16% to close at 2,869.05, marking a

fourth day of loss. Hong Kong's Hang Seng Index decreased 0.43% to 28,680.30. 

     FROM THE PRESS: Infrastructure investment, especially in transportation and

public service facilities, is expected to accelerate in the second half of the

year, along with rising local government bond issuance totaling CNY1.35 trillion

this year, Shanghai Securities News reported. China's annual growth in

infrastructure investment is likely to reach between 13% and 15%, the newspaper

said, citing Huatai Securities. CNY1 trillion in local government bonds,

including land reserve bonds, highway bonds and shantytown renovation bonds,

will be used to raise funds for major infrastructure projects, Huatai Securities

said, according to the newspaper.

     China's looser monetary policy and more active fiscal policy are increasing

volatilities in the government bond market, China Securities Journal reported.

The trend of government bonds will be determined by the strength of liquidity

injections and the possibility of shifting from "stable credit" to "loose

credit," the newspaper said, citing institutions including Orient Securities

Futures. With the alleviation of credit defaults crises, risk preference will

rise and capital will be redistributed from high-rated credit bonds to middle-

and low-rated credit bonds, the newspaper said, citing Golden Credit Rating.

     Financial institutions should set a transition period for the

implementation of new asset management rules and tailor the rules to specific

cases, said Tao Ling, deputy director of Financial Stability Board of the PBOC

according to Shanghai Securities. The new rules are aimed at creating a

beneficial environment for new products and increasing financing sources for the

real economy, Tao said. Regulations on non-standard assets will continue to be

tight, but public fund management products are allowed to be invested in

non-standard assets, which partly finance the real economy, Tao said. The PBOC

will soon publish rules on transferring non-standard assets to standard assets,

Tao said, according to the newspaper.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]