MNI China Daily Summary: Thursday, August 17

     TOPS NEWS: China's prudent and neutral monetary policy needs to be fully

implemented, and cutting banks' reserve requirement ratios could be an option

for that policy, the 21st Century Business Herald said Thursday in a commentary.

This year's monetary policy is leaning looser than last year, with new loans

reaching CNY8.8 trillion in the first seven months, CNY798.1 billion more than

in the same period last year. Increasing capital demand and the strong desire of

financial institutions to expand are causing monetary policy to loosen,

hindering the goal of neutral policy, the commentary said. Therefore, the

monetary policy framework needs to be reformed to slow the growth in the scale

of financing and improve financial institutions' investment structures, the

newspaper argued. A reduction in the reserve requirement ratio could facilitate

such a reform, it added, allowing financial institutions to have more excess

reserves and rely less on liquidity injections by the People's Bank of China.

(21st Century Business Herald)

     DATA: Chinese banks sold less foreign exchange to their customers in July

as the yuan exchange rate rose at a stable pace, data released Wednesday by the

State Administration of Foreign Exchange (SAFE) showed. Banks sold a net CNY42.8

billion worth of foreign exchange to clients in July, significantly down from

CNY92.3 billion in June, SAFE said. July sales were the lowest since the CNY21.7

billion sold in August of last year. The change indicates that the willingness

of banks' clients to purchase foreign exchange has continued to decrease as the

yuan has gained strength.

     RATES: Money market rates fell on Thursday after the PBOC's net injection

of CNY50 billion via open-market operations. The seven-day repo average was last

at 2.8577%, down from Wednesday's average of 2.9132%. The overnight repo average

was at 2.8306%, compared with Wednesday's 2.8627%.

     YUAN: The yuan experienced a big gain against the U.S. dollar Thursday

after the People's Bank of China set a stronger daily fixing. The yuan was last

at 6.6718 against the U.S. unit, 0.35% stronger than the official closing price

of 6.6955 on Wednesday. The People's Bank of China set the yuan central parity

rate against the U.S. dollar at 6.6709 Thursday, modestly stronger than

Wednesday's 6.6779.

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

3.5838%, down from the previous close of 3.5852%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, leading higher by the railway freight and coal mining

sectors. The benchmark Shanghai Composite Index closed up 0.68% at 3,268.43.

Hong Kong's Hang Seng Index was 0.27% lower at 27,335.23.

     FROM THE PRESS: As industrial capacity cuts increase, the pricing of

upstream products needs to be examined, the Economic Information Daily, a

newspaper under the official Xinhua News Agency, said Thursday in a front-page

commentary. On the one hand, capacity cuts have enhanced prices in higher-end

products, which has caused profits in some industries to rise to their highest

levels in history, the commentary said. However, the rapid expansion of upstream

products has eroded profits for industries with lower-end products. China's

capacity reduction program has had some success, and some industries' fortunes

have improved, the commentary said. But policymakers should place controls on

pricing ranges and avoid any rapid decrease in prices to balance profits in

upstream and downstream industries, and also to avoid excessive increases in

prices that could hinder economic growth, the commentary said. (Economic

Information Daily)

     The People's Bank of China is likely to maintain its current monetary

policy given adequate growth and the approach of this autumn's Communist Party

Congress, at which a new political leadership will be chosen, the South China

Morning Post reported Thursday. The expansion of China's aggregate social

financing is above the record-low growth of M2 money supply, suggesting the

central bank is walking a fine line between debt growth and economic expansion,

the report said. Analysts say China's efforts to rein in debt have helped boost

the real economy. (South China Morning Post)

     Property developers are caught between adding leverage and deleveraging,

the 21st Century Business Herald reported Thursday. During a time when China is

campaigning for deleveraging, property companies are under pressure to avoid

losing out during consolidation in the sector that has resulted from government

controls, the report said. At the same time, they need financing to acquire land

and are afraid of losing investment opportunities, the report said. Some

property developers are aggressive in acquiring land, even resorting to using

off-balance-sheet credit, such as private financing, which usually has a high

interest rate. An unidentified expert told the newspaper that the debt ratio of

property developers has edged up amid the new consolidation cycle. The pressure

on developers to translate investment into revenue has become more intense and

the financing environment has tightened, making debt management more difficult,

the expert said. The expert warned that some property developers' aggressive

land and project acquisitions are like gambling: if they make the right

judgment, they could boost their growth; if not, they could be stuck in a debt

crisis and be acquired by other companies. (21st Century Business Herald)

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

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

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