MNI China Daily Summary: Thursday, September 14

     TOPS NEWS: China plans to sell $2 billion in bonds in September -- its

first sale of U.S.-dollar sovereign bonds in more than a decade, The Wall Street

Journal reported Thursday. After being absent from the international bond market

since 2004 the sale is a move by the Chinese government to improve its standing

with international investors and draw interest to its bond market after the

government's tightening of capital outflows hurt credibility. The WSJ said most

buyers were expected to be domestic China investors and institutions and, if the

sale was successful, it would signal investors were confident in China's

economic growth and creditworthiness. (The Wall Street Journal)

     TOP NEWS: U.S. President Donald Trump has rejected a U.S. chipmaker's deal

with a China government-backed company because of national security concerns,

The Wall Street Journal reported Thursday. Lattice, a chip company whose

products are used by the American government, was in discussions with Canyon

Bridge as part of China's repeated attempts to invest in the semiconductor

industry. The deal's failure signals continuing conflicts in the U.S.-China

battle over chip technology and foreign direct investment, the newspaper said.

The Wall Street Journal quoted the Global Times, a China government mouthpiece,

as saying a rejection of the deal by Trump "may further intensify the tensions

surrounding Sino-U.S. trade relations" and that China may take retaliatory

measures against U.S. businesses in China. (The Wall Street Journal)

     POLICY: Foreign financial institutions continued to increase their holdings

of bonds and negotiable certificates of deposit (NCDs) in August as the yuan

gained strength, while domestic banks and asset management funds targeted policy

bank bonds while unloading NCDs due to tightened regulations. "Domestic bonds

yields are very attractive compared with other countries' bonds yields,

especially short-term bonds," China International Capital Corporation (CICC)

said in a report on Tuesday. "Also, the continuing appreciation of the yuan has

changed depreciation expectations, motivating foreign institutions to increase

their purchases of China bonds."

     DATA: Retail sales in China saw lower-than-expected growth in August as

sales in major sectors with the largest retail volumes all slowed compared with

July, according to data released by the National Bureau of Statistics on

Thursday. Retail sales grew 10.1% to CNY3.033 trillion in August on a yearly

basis, the slowest growth rate since 9.5% growth in the January-February period,

and the lowest single-month increase since last October, when it was also 10.1%.

August retail sales also came in 0.4 percentage point lower than the 10.5%

median growth forecast of the 19 financial institutions that comprise the MNI

survey.

     DATA: China's industrial output growth continued to slow in August

following a sharp decrease in July and came in well below market expectations,

adding to evidence that China's economy is slowing. Industrial output grew 6.0%

on an annualized basis in August, below the MNI survey median for 6.6% growth

and also below the 6.4% and 7.6% growth rates in July and June, the National

Bureau of Statistics said Thursday. The August industrial output growth rate was

the lowest this year.

     DATA: Fixed-asset investment growth in China was weaker than expected in

the first eight months of the year due to slowdowns in infrastructure spending

and private investment, according to statistics released Thursday by the

National Bureau of Statistics. Fixed-asset investment totaled CNY39.42 trillion

in the January-August period, up 7.8% from the year-earlier period but lower

than the 8.1% gain in the same period last year and the 8.2% increase expected

in a Market News Survey of 20 economists.

     RATES: Money market rates were higher on Thursday after the PBOC injected a

net CNY100 billion via its open-market operations. The seven-day repo average

was last at 2.9053%, up from Wednesday's average of 2.8271%. The overnight repo

average was at 2.6830% compared with Wednesday's 2.6312%.

     YUAN: The yuan fell against the U.S. dollar Thursday after the People's

Bank of China set a weaker daily fixing. The yuan was last at 6.5466 against the

U.S. unit, dropping 0.24% compared with the official closing price of 6.5309 on

Thursday. The People's Bank of China set the yuan central parity rate against

the U.S. dollar at 6.5465 on Thursday, modestly weaker than Wednesday's 6.5382.

The PBOC set the fixing weaker for a third consecutive day after 11 consecutive

days of strengthened fixings.

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

3.5929%, down from the previous close of 3.6126%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, leading lower by the non-ferrous metal and

ceramics sectors. The benchmark Shanghai Composite Index closed down 0.38% at

3,371.43. Hong Kong's Hang Seng Index was 0.37% lower at 27,791.81.

     FROM THE PRESS: The National Development and Reform Commission and the

Ministry of Commerce are jointly compiling a list of companies with previous

"irrational and aggressive" investment behavior, the China Daily reported

Tuesday, quoting an unidentified NDRC senior official. It aims to ensure the

authenticity of Chinese companies' outbound direct investments. The list will be

published as early as next month, according to the official. As another

government measure to curb irrational and aggressive investment by Chinese

companies overseas, the list won't necessarily automatically ban all named

companies from investing abroad but will impose more state supervision and

inspection of their activities, the commission official said. (China Daily)

     The People's Bank of China is unlikely to reduce the required reserve ratio

based on current conditions even though there have been calls for a cut, the

China Securities Journal reported Thursday. The latest RRR-cut discussions were

sparked by recent yuan appreciation -- which reflects long-term concerns over a

relatively low excess RRR and tight liquidity. But many experts don't think the

exchange rate is the only factor affecting monetary policy, the report said.

Because the main goals of monetary policy are stabilizing economic growth,

preventing inflation and deleveraging, short-term yuan appreciation may not be

the reason for an RRR cut -- not to mention that depreciation pressure on the

yuan hasn't been fully removed. Therefore, it isn't likely that the PBOC will

reduce the RRR this year. Monetary policy will remain prudent and neutral, the

report said. (China Securities Journal)

--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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