MNI China Daily Summary: Tuesday, August 22

     TOPS NEWS: U.S. prosecutors are building legal cases against a series of

Chinese firms they say are key financial conduits for the North Korean

government, the Wall Street Journal reported Tuesday. Funds for the Chinese

companies that are processed through U.S. banks have already been frozen, the

report said, quoting people familiar with the matter. If broader cases are built

against the firms showing clear linkages between them and the North Korean

government, the funds could be seized, the people said.

     TOPS NEWS: The People's Bank of China injected CNY40 billion in seven-day

reverse repos and CNY20 billion in 14-day reverse repos via open-market

operations. This resulted in a net drain of CNY10 billion for the day, as a

total of CNY70 billion in reverse repos matured on Tuesday. The CFETS-ICAP

money-market sentiment index ended at 58 on Monday -- up from 50 at Friday's

close -- as the PBOC drained a net CNY50 billion via OMOs from the interbank

market on Monday. The lower the reading, the better the liquidity conditions in

the interbank market.

     RATES: Money market rates were lower. The seven-day repo average was last

at 2.8783%, compared with Monday's average of 2.8795%. The overnight repo

average was at 2.7662%, compared with Monday's 2.8758%.

     YUAN: The yuan was stronger against the U.S. dollar after the People's Bank

of China set the fixing rate much stronger for the day. The yuan was last at

6.6553 against the U.S. unit, compared with the official closing price of 6.6702

on Monday. It was the strongest the currency has been since Aug. 10, when it

touched 6.6485. The PBOC set the yuan central parity rate at 6.6597, 0.17%

higher than Monday's 6.6709. It was the strongest fixing since 6.6513 on Sept.

22 of last year.

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

3.5991%, compared with the previous close of 3.5966%.

     STOCKS: Stocks were up, with the coal and real estate sectors leading

gains. The benchmark Shanghai Composite Index closed up 0.10% at 3,290.23. Hong

Kong's Hang Seng Index was 1.29% higher at 27,505.81.

     FROM THE PRESS: Total trust loans expanded in the first half of the year to

their largest volume in seven years as transactions using multiple funding

channels rebounded and a large amount of capital from insurance was invested in

non-standard assets, the China Securities Journal reported Tuesday. According to

data from the People's Bank of China, trust loans increased by CNY1.31 trillion

in the first half of this year, more than four times the CNY279.2 billion in the

same period last year, the report said. Banks' wealth management funds are the

biggest source of capital for trust loans, while real estate companies are the

main borrowers of trust loans, the report said. But the rising momentum of trust

loans will not continue because authorities are increasingly focused on such

activities and will further tighten regulations, the report argued. (China

Securities Journal)

     Crude steel output reached its highest level in years in July as mills

increased production because of rising prices, the Securities Daily reported

Tuesday. Statistics from the China Iron and Steel Association, an industrial

organization, showed that output grew 10.27% to 6.89 million tons, the highest

in recent years. Steel prices continue to rise with the reduction of production

overcapacity. But as environmental regulations are tightened, some regions will

take measures to limit output, so the rapid growth will not last long, the

report argued. (Securities Daily)

     A sudden surge in commodities prices, including for coal and nonferrous

metals, is being driven by speculation and unrealistic expectations of price

increases, the Economic Information Daily reported Tuesday, citing analysts.

Economic fundamentals do not support a rapid rise in commodity prices,

particularly given the current balance of supply and demand. The so-called "new

cycle" of commodities ignores the actual level of commodities prices and runs

counter to regulatory policies, the report noted. The China Securities

Regulatory Commission has said it will enhance regulation and curb speculation.

(Economic Information Daily)

     China will accelerate the restructuring of state-owned enterprises (SOEs),

starting with those run by the central government, the People's Daily said in a

front-page commentary on Tuesday. The number of SOEs run by the central

government has fallen to 99 this year from 117 in 2012 because of the reform

campaign. The country will push forward with SOE restructuring in sectors

including coal power, steel and heavy equipment manufacturing, particularly

their overseas assets. The move will strengthen the coordination of the SOEs and

enhance the integration of resources, the commentary added. (People's Daily)

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

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

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