MNI China Daily Summary: Thursday, July 26

     LIQUIDITY: The People's Bank of China (PBOC) drained a net CNY70 billion

via its reverse repos on Thursday. The PBOC did not conduct open market

operations today, citing that fiscal expenditure at the end of the month can

offset the impact of maturing reverse repos. CFETS-ICAP's money-market sentiment

index closed at 32 on Thursday, down from 37 on Wednesday.

     MONEY MARKET RATES: The benchmark 7-day deposit repo average fell to

2.6365% on Thursday from 2.6537% on Wednesday; the overnight average decreased

to 2.3012% from 2.3315% on Wednesday: Wind Information.

     YUAN: The yuan strengthened to 6.7397 against the U.S. dollar on Thursday

from Wednesday's 6.7784 closing, following today's stronger fixing. The PBOC set

the yuan central parity rate at 6.7662, stronger than Wednesday's 6.8040. The

rise of 378 pips marks the strongest fixing since Monday. USDCNH is trading at

its daily high of 6.7829 after failing to push lower after taking out

yesterday's low earlier today. Bulls would need a break back above 6.8200 to

suggest a resumption of the steep uptrend.

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

3.5325%, down from the previous close of 3.5700%, according to Wind Information.

     STOCKS: Shares in Shanghai extended losses today, with pressure from

financials, autos, steels and computer names. The Shanghai Composite Index

closed 0.74% down at 2882.23. Hong Kong's Hang Seng Index fell 0.71% to

28716.01.

     FROM THE PRESS: Over 200 real estate regulatory policies have been

implemented in China in the first half of the year, marking the highest such

number in history, Xinhua News Agency reported. Third- and fourth-tier cities

continue to see large rises in housing prices as these strict policies have been

more focused on major cities, Xinhua said, citing Wang Yeqiang, director of the

China Academy of Social Sciences' real estate office. In the second half of the

year, local governments should evaluate land, finance, taxation and real estate

laws to tailor long-term policies to each city, stabilise housing prices and

discourage speculative investments, Xinhua said, citing experts including Zhang

Dawei, chief analyst at Centraline Property.

     Credit bonds will continue to rally in the short term, while government

bonds are expected to be under pressure, reported China Securities Journal. The

"loose money and loose credit" policy combination has resulted in marginal

benefits for credit bonds, driving down yield rates, while easing risk aversion

has pushed government bond yield rates higher, the newspaper said. The loose

credit policy will increase demand for medium- and low-rated credit bonds, said

Huachuang Securities, according to the Daily. This trend will ease the downward

pressure on economic growth and social financing, leading to relatively lower

values for government bonds, Huachuang Securities added.

     China-U.S. trade tensions have resulted in some uncertainties in China's

employment outlook, but the unemployment rate stayed between 4.8% and 5.1% in

the first half of the year, remaining relatively low, Economic Information Daily

reported, according to a statement from the National Development and Reform

Commission (NDRC). New technology and new industry have become the driving

forces of employment, said Ha Zengyou, inspector of the employment department of

the NDRC, according to the newspaper. China has great potential in domestic

demand, leaving enough room to cushion external uncertainties, Ha said. China

should accelerate the upgrading of traditional industries and the development of

new industries to provide more high-quality employment opportunities in the

second half of the year, Ha added.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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