MNI China Daily Summary: Thursday, September 7

     TOPS NEWS: While the yuan exchange rate has shown an obvious fluctuation

against the U.S. dollar recently, there is a decreasing possibility of a sharp

appreciation or depreciation this year, the Financial News, a newspaper operated

by the People's Bank of China, reported on its front page Thursday, citing

analysts. Several influences, including a robust economy, a weaker dollar,

stricter controls on capital flows and a newly added "countercyclical adjustment

factor" for the currency's daily fixing, have bolstered the yuan's strong

performance. Supply and demand in the foreign-exchange market have replaced the

dollar index as the main driver of the exchange rate, due to a sharp short-term

increase in foreign-exchange sales by companies, the report said. However, the

U.S. dollar is expected to rebound if President Trump's tax overhaul plan is

approved and the euro loses momentum, the newspaper warned, adding that a

potential trade conflict between China and the United States might have a

negative effect on the yuan. (Financial News)

     TOP NEWS: The People's Bank of China injected CNY298 billion in one-year

medium-term lending facility (MLF) instruments on Thursday, with the rates

unchanged at 3.2%, the PBOC said. This resulted in a net injection of CNY128.5

billion for the day, as a total of CNY169.5 billion of MLFs matured today. No

reverse repos matured on Thursday. The CFETS-ICAP money-market sentiment index

ended at 42 on Wednesday, up from 39 at Tuesday's close. The lower the reading,

the better the liquidity conditions in the interbank market.

     POLICY: Most major property developers experienced double-digit drops in

property sales as measured by floor space in August, as the Chinese government's

controls on the property market continued to bite, according to a report

published Tuesday by E-House, a Shanghai-based property information and services

provider. Data from 50 major hotspot cities where prices have risen rapidly

showed drops in property sales by area on both a year-on-year and a

month-on-month basis. In aggregate, sales dropped to 5.16 million square meters,

down 25% on the month and 33% on the year.

     POLICY: China's industrial sector was still in a modest contractionary

stage in the second quarter, with overcapacity problems having worsened

somewhat, according to a survey report published by Gan Jie, a professor at

Cheung Kong Graduate School of Business. The industry sentiment index on overall

current conditions stood at 46 in the second quarter, down from 47 in the first

quarter, signaling that activity contracted at a slightly faster rate in the

latest period.

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

net CNY128.5 billion via open-market operations. The seven-day repo average was

last at 2.8187%, up from Wednesday's average of 2.8116%. The overnight repo

average was at 2.6127% compared with Wednesday's 2.5961%.

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

Bank of China set a stronger daily fixing. The yuan was last at 6.5185 against

the U.S. unit, rising 0.11% compared with the official closing price of 6.5246

on Wednesday. The PBOC set the yuan central parity rate against the U.S. dollar

at 6.5269 on Thursday, modestly stronger than Wednesday's 6.5311. The PBOC has

set the fixing stronger for nine straight trading days, and Thursday's fixing

was the highest since May 18 last year.

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

3.6059%, down from the previous close of 3.6293%, according to Wind, a financial

data provider.

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

mining sectors. The benchmark Shanghai Composite Index closed down 0.59% at

3,365.50. Hong Kong's Hang Seng Index was 0.23% lower at 27,550.22. 

     FROM THE PRESS: The rapid growth of public-private partnership (PPP)

projects is overly reliant on preferential government policies, and the high

leverage ratio of these projects could create credit bubbles, the China

Securities Journal warned in a report Thursday, citing Xue Tao, an economist

with the National Development and Reform Commission, China's top economic

planning agency. Since 2014, investment in PPP projects has totaled over CNY16

trillion. The projects, mainly those involving engineering, usually focus on

initial construction and neglect their later operations and management, Xue

said. Regulations limit investment in PPPs to no more than 10% of the total

budget of the participating local government, but some local governments have

illegally used project funds to add leverage, Xue noted, warning that this had

undermined the central government's control of fiscal expenditures. (China

Securities Journal)

     The People's Bank of China restarted its 28-day reverse repo injections on

Wednesday to stabilize cross-quarter liquidity in the interbank market, the

Shanghai Securities News reported Thursday. This was the first time that the

PBOC had used the 28-day reverse repo in two and half months, although the

amount was just CNY20 billion. The central bank has consistently drained

liquidity this week, but the market has not experienced tightness, particularly

in short-term liquidity. Analysts expect the PBOC to continue to inject

longer-term capital to avert a possible liquidity crunch as its macro-prudential

assessments of banks approach at the end of September, the newspaper said. But

the central bank will keep the rate for the DR007 drepo -- a seven-day repo only

between banks -- between 2.9% to 3.0% to stabilize funding costs, the newspaper

added. (Shanghai Securities News)

     It is time for a measured lifting of restrictions on stock and futures

markets, as volatility has narrowed and participants' confidence has recovered,

the Economic Information Daily said in a commentary on its front page Thursday.

The government has focused on enhancing regulatory controls and boosting

confidence in the past two years, but now the temporary restrictions introduced

to deal with a crisis should be withdrawn, the commentary suggested. The

market-oriented overhaul of the securities market needs to move forward so that

capital markets can resume functioning to serve the real economy, the commentary

noted. (Economic Information Daily)

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

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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]