MNI China Daily Summary: Tuesday, Aug 14

     TOP NEWS: As the domestic push for growth loses steam, the People's Bank of

China (PBOC) expressed growing concerns over how external factors will impact

the economy, warning that the combined effects could hamper growth, according to

the bank's latest monetary policy report (MPR). The central bank warned that it

will mount counter-cyclical control "if necessary", particularly if the market

appears to have a "herd effect".

     DATA: New loans increased by CNY1.45 trillion in July from June, higher

than the median forecast of CNY1.20 trillion in an MNI analyst survey. M2 grew

at a 5-month high of 8.5% y/y in July, coming in above the 8.2% median in the

MNI survey and up from a record low of 8.0% y/y in June. M1 growth fell from

6.6% in June to a three-year low of 5.1% in July, indicating that firms are

holding less cash as their willingness to invest is decreasing.

     DATA: Fixed asset investment (FAI) growth from January to July extended its

downward trend faster than estimates, leading to the lowest number recorded

since the data was first compiled in 1992. Property investment buoyed overall

economic performance, though the government is not loosening tight curbs on the

property market.

     LIQUIDITY: The PBOC skipped open market operations today, citing that a

high level of liquidity can offset the impacts of issuance of government bonds

and tax payments. No reverse repos matured today. CFETS-ICAP's money-market

sentiment index closed at 40 on Monday, up from 38 on Friday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.5881% on

Tuesday from 2.4432% on Monday; overnight average increased to 2.3136% from

2.1031% on Monday: Wind Information.

     YUAN: The yuan weakened to 6.8902 against the U.S. dollar on Tuesday from

Monday's 6.8767 closing, following today's weaker fixing. The PBOC set the yuan

central parity rate at 6.8695 on Tuesday, weaker than Monday's 6.8629. The

central bank has set the fixing weaker for four trading days in a row.

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

3.5500%, down from the previous close of 3.5800%, according to Wind Information.

     STOCKS: Shanghai Composite Index closed 0.18% lower at 2780.96, weighted

down by steel and real estate shares. Hong Kong's Hang Seng Index declined 0.80%

to 27714.07, led by the IT sector.

     FROM THE PRESS: Social financing is weighted down by contraction in

off-balance-sheet financing under strict regulation, but it is likely to grow

steadily after new asset management rules published last month are put in place,

China Securities Journal reported, citing Wen Bin, chief economist of Minsheng

Bank, after July's money supply data was published last night. Unexpected growth

in new loans is mainly driven by policies, as the PBOC injected more liquidity

into the market and released more funds to small- and micro-sized enterprises

and infrastructure, the newspaper said, citing E Yongjian, chief economist of

Bank of Communications. The PBOC should next focus on enhancing the monetary

policy transmission mechanism, guiding more funds into the real economy, Wen

added, according to the newspaper.

     The growth in the mortgage rates for first-time home buyers is decreasing,

and it may have reached its peak in this round, Economic Information Daily

reported. The mortgage rate is unlikely to be lowered nationwide in the short

term, the newspaper said, citing Li Weiyi, a big data analyst from Rong360. The

housing purchase leverage ratio for individuals has fallen for five consecutive

quarters, marking a total fall of 8.6 percentage points since Q1 17, the

newspaper said, citing a report by E-house Research Institute. Under strict

regulation policies and tight credit, housing purchase leverage ratio will

continue to decline and housing price growth will likely follow, the newspaper

said, citing Shen Xin, an analyst from E-house Research Institute.

     China should evaluate its approach to infrastructure investment amid the

pressures of deleveraging and stabilising economic growth, Securities Times said

in a commentary, after infrastructure investment growth fell to 3.3% in June,

the lowest since 2004. Infrastructure investment should be tailored to each

region's development needs while avoiding strong stimulus measures, the

newspaper said. Infrastructure investment demands structural enhancement, such

as rural infrastructure and energy structure optimization, targeting shorter

links, the newspaper added.

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

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

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