MNI China Daily Summary: Monday, September 16

     DATA: China's August macroeconomic indicators failed to meet expectations

and were worse than July. Industrial output growth dropped to 4.4% y/y from

July's 4.8% gain, posting the lowest level this year and missing the 5.3%

projected by analysts polled by MNI. Fu linghui, a spokesman at the National

Bureau of Statistics, said one less work day as well as typhoons were partly

responsible for the slower growth in industry output. Fixed-asset Investment

recorded 5.5% growth y/y, edging down from 5.7% in the Jan-July period. This

underperformed the 5.6% median forecast in an MNI survey. Retail sales grew by

7.5% y/y, falling from July's 7.6% gain and also missing the 8.1% forecast

polled by MNI. This is the lowest level in four months since April's 16-year low

of 7.2%.

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

(OMOs). This led to a net drain of CNY160 billion given the same amount of

reverse repos matured, according to Wind Information. The reserve requirement

ratio cut by 0.5 percentage point announced on September 6 came into effect

today and is expected to release about CNY800 billion of long-term funds, the

PBOC said. The total liquidity in the banking system is relatively high, enough

to offset the maturity of reverse repos, the PBOC added.

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

institutions (DR007) fell to 2.5859% from Thursday's close of 2.6383%, Wind

Information showed. The overnight repo average decreased to 2.3356% from

Thursday's 2.3670%. 

     YUAN: The yuan strengthened to 7.0640 against the dollar from Thursday's

close of 7.0882. The PBOC set the dollar-yuan central parity rate lower at

7.0657, compared with 7.0846 on Friday.

     BONDS: The yield on 10-year China Government Bonds was last at 3.1350%, up

from the close of 3.1300% on Thursday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index decreased 0.02% to 3,030.75. Hong

Kong's Hang Seng Index edged down 0.83% to 27,124.55.

     FROM THE PRESS: China's monetary policy is expected to remain stable even

if the PBOC cuts interest rates at the same time as other central banks, the

Securities Times said in a front-page report. The upward CPI restrains the

central bank from further easing while the PPI deflation pressure does not

support further tightening, the newspaper said. Monetary policies may be eased

marginally by ensuring the supply of funds needed to stabilize the economy and

reducing financing costs, the newspaper said.

     A stronger China is the most effective way to boost bi-lateral ties with

the U.S., according to an editorial in Global Times on Saturday. The newspaper

said China needed to be vigilant against extreme conservatives in the U.S., who

were exerting a destructive influence on U.S. policy on China. China should

continue to guide Sino-U.S. relations towards a healthy path, the editorial

said.

     China is planning to roll out a package of new risk-prevention measures

with a particular focus on the stronger supervision of financial institutions

and small and medium banks, the Economic Information Daily reported. The

crackdown on illegal financial activities such as illegal fund-raising will

continue to ramp up, the newspaper said.

     China can attract more foreign capital after it abolished previous

quota-based schemes known as QFII and RQFII, the Xinhua News Agency reported

citing Zhang Xin, a deputy director of the State Administration of Foreign

Exchange. As most foreign investors tend to hold assets for the long term, the

increased participation by foreign capital helps stabilize the yuan and maintain

the balance of international payments, Zhang said according to Xinhua.

     China must have self-confidence in its "socialism with Chinese

characteristics" political system and not forgo its deep roots in Chinese

society, President Xi Jinping said at the ceremony marking the 60th anniversary

of the National People's Congress, China Central Television reported yesterday.

To judge whether a nation's political system is democratic and effective, one

needs to look at several factors including whether the leadership transition is

in accordance with law and orderly, whether the use of power can be effectively

checked and monitored, and whether talents can enter the leadership and

management system through fair competition, Xi said according to CCTV.

--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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