MNI China Daily Summary: Thursday, August 10

     TOPS NEWS: Fitch Ratings said Thursday that bankruptcies in China are

likely to increase along with the government's deleveraging campaign, with

market forces playing only a "minor role" in determining failures among

state-owned enterprises. Although China's government has become more accepting

of bankruptcies, it is hesitant to let large state-owned enterprises -- even the

so-called zombie companies that account for the bulk of industrial overcapacity

-- fail because of the accompanying job losses and drag on economic growth such

a strategy would entail, Fitch said in a report. 

     TOP NEWS: The People's Bank of China injected CNY50 billion in seven-day

reverse repos and CNY40 billion in 14-day reverse repos via open-market

operations. This resulted in a net injection of CNY30 billion for the day, as a

total of CNY60 billion in reverse repos matured on Thursday. It was the first

day the PBOC had made net injections at OMOs since July 28. The CFETS-ICAP

money-market sentiment index ended at 41 Wednesday, compared with 43 at

Tuesday's close. The lower the reading, the better the liquidity in the

interbank market.

     RATES: Money market rates were down. The seven-day repo average was last at

2.9012%, lower than Wednesday's average of 2.9242%. The overnight repo average

was at 2.7889%, lower than Wednesday's 2.8086%.

     YUAN: The yuan rose against the U.S. dollar after the People's Bank of

China set a stronger daily fixing and foreign-exchange sales continued to

increase as yuan appreciation expectations climbed. The yuan was last at 6.6650

against the U.S. unit, 0.19% stronger than the official closing price of 6.6776

on Wednesday. The yuan jumped to as strong as 6.6520, the highest interday rate

since Aug. 26, when it hit 6.5612. The People's Bank of China set the yuan

central parity rate against the U.S. dollar much stronger at 6.6770, 0.45%

higher than Wednesday's 6.7075. Today's fixing was the highest since Sept. 29.

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

3.6409%, down from the previous close of 3.6541%, according to Wind, a financial

data provider.

     STOCKS: Stocks fell, led lower by the financial and resources sectors. The

benchmark Shanghai Composite Index closed down 0.42% at 3,261.75. Hong Kong's

Hang Seng Index was 1.04% lower at 27,468.25.

     FROM THE PRESS: State-owned enterprises will accelerate deleveraging by

reducing debt ratios and controlling investments, the China Securities Journal

reported Thursday. Guidelines for debt-to-equity swaps, restructuring and

debt-risk prevention are expected to be issued this year, it said, quoting

officials with knowledge of the matter. High risks associated with outbound

investment are also being addressed. Some SOEs have speculated in the financial

sector, jeopardizing the security of state-owned assets. Authorities should

establish rules to curb this, the report said. (China Securities Journal)

     Low inflation is likely to continue in the long term, considering that both

consumer- and producer-price indexes will fall in the second half of this year,

the Securities Times said in a commentary on Thursday. The contribution of

consumption to economic growth is increasing owing to high prices, but the rise

of consumption is slow, the commentary said. The "new economy" is highly

influenced by price factors but the quality of economic growth is lagging, it

said. (Securities Times)

     Companies are buying wealth-management products issued by banks at a faster

pace as yields rise owing to tighter liquidity, the 21st Century Business Herald

reported Thursday. To date this year 826 companies have bought a total of

CNY742.98 billion in WMPs. Factors such as excess capital resulting from

overcapacity are contributing to the growth in WMP purchases, the report said.

If this momentum continues, more capital will head for the financial sector and

make it difficult to find funding for the real economy, the report said. (21st

Century Business Herald)

     Outbound investment by real-estate companies has fallen 82% year-over-year

to date this year, a consequence of the regulatory tightening that began late

last year, the China Securities Journal reported Thursday. Total outbound

nonfinancial direct investment fell 45.8% to $48.19 billion in the first half,

according to Ministry of Commerce data. Investment in hotels, entertainment and

sports fell, too, while investment in manufacturing, business services and

medicine increased, the report said. (China Securities Journal)

--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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