MNI China Daily Summary: Tuesday, August 15

     TOP NEWS: China's Ministry of Commerce warned Tuesday the United States

should keep its promise not to "destroy multilateral rules," according to a

statement on the ministry's website. The comment came in response to the Trump

Administration's order to U.S. trade officials to investigate China's

intellectual property practices and forced technology transfer. The U.S. should

treasure the current positive status of U.S.-China economic and trade

cooperation and any protectionist measures implemented by the U.S. would

definitely harm the bilateral relationship and hurt companies on both sides, the

ministry said. China has actively opened its market, has made efforts to improve

the environment for foreign investors, and has strengthening the protection of

intellectual property rights, efforts that have been recognized by the world.

The ministry stressed its hope U.S. trade officials would "respect objective

truth" and "take action carefully." China will take "all proper measures" to

defend its legal rights if the U.S. does not respect multilateral trade rules

and harms economic and trade relations between the two countries, the ministry

said.

     TOP NEWS: China's official Xinhua News Agency warned Tuesday the U.S. "not

to let unilateralism harm the economic and trade relationship between China and

the U.S." The report was mild in tone and avoided aggressive wording. Xinhua

said any unilateral U.S. action would contravene current global norms, as

countries now settle their trade disputes through the World Trade Organization.

The revival of unilateral legal procedures which have rarely been used since the

establishment of the WTO has triggered concern from many people, the commentary

said. Xinhua stressed the importance of the maintaining the current China-U.S.

relationship, noting any disturbance could affect the stability of the entire

global trade system. "Unilateral action can never resolve the economic and trade

imbalance problem between the two countries" and the country taking such

measures "would not only harm the other, but also harm itself." (Xinhua News

Agency)

     POLICY: The People's Bank of China is likely to introduce new types of

reverse repos in the near future, the central bank's second quarter monetary

policy report hinted. "In order to avoid the constant loosening or tightening of

liquidity conditions that have caused the misinterpretations of steady and

neutral monetary policy, open-market operations will enhance the flexibility of

actively injecting and draining [liquidity], and research ways to increase the

terms of reverse repos ... to maintain the overall stability of liquidity

conditions," the report said. The new reverse repo is very likely to have a

two-month term, midway between the current longest-term reverse repo of 28 days

and the shortest Medium-term Lending Facility (MLF) instrument of three months.

     RATES: Money market rates were mixed on Tuesday after the PBOC injected

CNY399.5 billion in one-year Medium-term Lending Facility (MLF) instruments and

skipped open market operations. The seven-day repo average was last at 2.8406%,

down from Monday's average of 2.8933%. The overnight repo average was at

2.8162%, compared with Monday's 2.7673%.

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

of China set a weaker daily fixing. The yuan was last at 6.6792 against the U.S.

unit, dropping 0.16% compared with the official closing price of 6.6687 on

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

U.S. dollar at 6.6689 Tuesday, weaker than Monday's 6.6601.

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

3.5737%, down from the previous close of 3.5870%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, leading higher by the financial trust and insurance

sectors. The benchmark Shanghai Composite Index close up 0.43% at 3,251.26. Hong

Kong's Hang Seng Index was 0.38% higher at 27,353.06. 

     FROM THE PRESS: China property sales are expected to slow in the second

half of this year and into 2018, UBS said in a report Monday. It expects sales

may not grow in 2018 or could even drop slightly as market sentiment changes and

the government implements more policy-tightening measures. For the whole of

2017, UBS raised its sales growth expectations to 8%-10%, from 6%-8%, based on

strong sales to date. UBS projects that no serious nationwide controls would be

imposed, as local governments usually issue different housing policies based on

local conditions.

     The inclusion of negotiable certificates of deposit (NCDs) into the

macro-prudential assessment (MPA) of banks conducted by the People's Bank of

China will not impose undue pressure on the banking sector, Xu Zhong, chief of

the PBOC's research bureau, said in a commentary published by Caixin Magazine on

Tuesday. In its second-quarter monetary policy implementation report, the PBOC

noted that it will include NCDs issued by banks with over CNY500 billion of

assets when it calculates their interbank liabilities, beginning in the first

quarter of 2018. Xu said that of the 35 banks with over CNY500 billion in

assets, many had already voluntarily reduced their interbank liabilities since

the end of the second quarter. The PBOC will continue to improve its MPA testing

and strengthen communication with the financial sector in a bid to stabilize

expectations and implement regulations at an orderly pace, Xu stressed. (Caixin

Magazine)

     It is completely possible that the People's Bank of China could lower its

required reserve ratio given the excess reserve ratio is quite low, Sheng

Songcheng, a counsellor at the PBOC, said in a report in China News Service on

Tuesday. However, a cut in the RRR will be signal to markets that the central

bank had loosened policy, which is not in line with the central bank's monetary

policy stance right now, Sheng said. Cutting the RRR is not flexible because the

PBOC could not turn around and raise the RRR ratio if needed, so the PBOC is

more likely to use other monetary policy tools like its Standard Lending

Facility (SLF), its Medium-term Lending Facility (MLF) and its Pledged

Supplementary Lending (PSL) facility to increase liquidity as needed, Sheng

said. (China News Service)

     The internationalization of the yuan should be achieved by relying on

capital projects to "export" the yuan, Sun Guofeng, director general of the

People's Bank of China's research institute, said at a conference Saturday,

Caixin reported late Monday. China can further internationalize the yuan by

making use of the One Belt One Road initiative to lend to countries involved in

the program in RMB. (Caixin)

     Given the PBOC's announcement that it will include negotiable certificates

of deposit (NCDs) with durations of less than one year issued by banks with

assets of more than CNY500 billion in these banks' quarterly Macro-Prudential

Assessments, NCD business is facing pressure from both the supply and demand

sides, the China Securities Journal reported Tuesday. Experts said the PBOC

measure would force commercial banks to further adjust the structure of their

liabilities, ending their high-speed "balance-sheet-expansion era." While

financial market deleveraging in the second half of the year will continue to

put pressure on the market, better coordination of financial supervision and the

government mandate to maintain "stability" will ensure there are no big shocks,

the newspaper said. (China Securities Journal)

     Weaker-than-expected economic data released Monday only show the economy

has "returned to normal status," in line with the downward trend from January to

May, as the better-than-expected performance of June may have been just "a

dream", the 21st Century Business Herald said in a front-page commentary

Tuesday. The steady slowing of Chinese economic growth is inevitable and there's

no "new growth cycle" as some analysts have argued recently. China's current

policy environment will determine the scope for economic growth in the period

ahead, as the government continues to campaign to deleverage financial markets,

control risks, curb asset bubbles and rein in local government debt, the

newspaper said. The strengthening of China's economic foundation and

transformation to sustainable growth is a long-term process and major challenge,

which means the traditional growth model that relies on ample credit will fade.

The market should be neither overly pessimistic or overly optimistic about the

outlook. (21st Century Business Herald)

     Hong Kong Financial Secretary Chen Maobo said HK housing prices have

already surpassed the level seen just before the Asian Financial Crisis of 1997,

the 21st Century Business Herald reported Tuesday. Chen was quoted as saying the

HK government has no intention to loosen its controls on the property market,

which date back to 2009. He said he worries that many activities in the current

property market "are unreasonable," according to the newspaper. In the first

five months of this year, the average price of a medium- to small-sized home in

HK rose 9.1% y/y to a level 76% higher than the peak in 1997. Though

transactions are still robust, the sector seems to have cooled down slightly

recently. (21st Century Business Herald)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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