**MNI China Daily Summary: Thursday, August 2

     **TOP NEWS: China Communist Party's politburo increased the urgency of

boosting growth and improving trade prospects by tying it to economic stability.

In describing monetary policy, the circular passed by Xinhua removed the

expression of "neutral" before "prudent monetary policy", which signaled a

loosening stance. The politburo demanded fiscal policy play a bigger role in

further expanding domestic demand and restructuring.

     TOP NEWS: China will implement a steady monetary policy, while finetuning

policy and maintaining liquidity at a proper and sufficient level in the second

half of the year, the People's Bank of China (PBOC) said in a statement on its

website late yesterday. 

- PBOC to improve communication with the market on policy implementation, and

will improve the perceptiveness, flexibility and effectiveness of monetary

policy

***Comment: The statement tweaked wording of "tightly controlling" money supply

to "closely monitoring", signaling that money supply will be loosened while

avoiding a major flood of credit.

     POLICY: China has the capacity to counter the impact of a changing external

environment on its inflation, the National Development and Reform Commission

said at a press conference in Beijing on Thursday, in reference to the trade war

with the U.S. "Domestic environment is the deciding factor," said Yue Xiuhu,

director general of NDRC's Pricing Division.

     POLICY: China may not loosen controls over the property market to stimulate

growth this year, as concerns over financial risks outweigh possible impact of

the the trade war, industry analysts told MNI. "The tone of 'firmly curbing the

rise of housing prices' is stricter than any other mentions by policymakers to

date," said Yang Hongxu, deputy head of the E-house Real Estate Research

Institute.

     LIQUIDITY: PBOC net drained CNY30 billion via reverse repos on Thursday,

according to a statement on its website. The PBOC skipped open market operations

(OMO) today, citing that a relatively high level of liquidity can absorb

maturing reverse repos. CFETS-ICAP's money-market sentiment index closed at 28

on Wednesday, down from 29 on Tuesday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.4279% on

Thursday from 2.5675% on Wednesday; Overnight average decreased to 1.9501% from

1.9973% on Wednesday: Wind Information.

     YUAN: The yuan weakened to 6.8080 against the U.S. dollar on Thursday from

yesterday's closing of 6.7948, despite today's higher fixing. The PBOC set the

yuan central parity rate at 6.7942, stronger than Wednesday's 6.8293. The yuan's

slight strength is coming amid heaving selling in Chinese stocks, with both

mainland and Hong Kong indices continuing to weaken after breaking key

supportive levels yesterday.

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

3.4800%, unchanged from the previous close, according to Wind Information.

     STOCKS: Shares in Shanghai and Hong Kong slumped sharply after Trump

threatened to more than double the tariff rates on the proposed $200 billion

Chinese goods. Shanghai Composite Index closed 2% lower at 2,768.02, led by real

estate and media sector. Hong Kong's Hang Seng Index fell 2.25% to 27,704.12.

     FROM THE PRESS: China will further its deleveraging campaign while keeping

liquidity at a sufficient level, Xinhua News Agency said in a commentary. China

must curb growing risks in local government debt when implementing more

proactive fiscal policies, Xinhua said. Fiscal policies, including expanding

domestic demand and supply-side structural adjustment, should coordinate with

adjustments in monetary supply, Xinhua said, citing Wang Jun, chief economist of

Zhongyuan Bank.

     China faces increasing external uncertainties, including risks to its

foreign trade and investment, the 21st Century Business Herald reported, citing

Bai Ming, deputy director of the International Market Research Institute under

the Ministry of Commerce (MOFCOM). The internal and external risks China faces

are closely related, which limits macro policy adjustments, Bai added. China's

exports should shift from lower costs to newer technology, higher quality and

better branding to be more competitive in the global market, Bai noted. China

should improve its business environment and protect foreign enterprises' legal

rights to stabilize foreign investment, as foreign companies contributed to

almost half of Chinese exports in 2017, the newspaper said, citing Gao Feng,

spokesperson of the MOFCOM.

--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

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