MNI China Daily Summary: Tuesday, August 8

     TOPS NEWS: Chinese import and export growth decelerated in July, indicating

worse-than-expected external and domestic demand. The decreases in both were

unexpected. According to the General Administration of Customs, July export

growth softened to 7.2% year-on-year, the lowest since February, when it

decreased 1.3% due to seasonal factors relating to Chinese New Year. It was also

below the MNI median forecast for a 10.8% rise and lower than the 11.3% gain in

June, due mainly to weaker overseas demand. Imports increased 11.0% year-on-year

in July, lower than the MNI median forecast for a 17.5% gain and also lower than

the 17.2% rise in June. It was the slowest growth rate since last December's

3.1% gain. As a result, China posted a $46.74 billion trade surplus in July,

higher than the MNI survey median forecast for a $46.4 billion surplus and above

June's $42.77 billion surplus.

     TOP NEWS: A possible investigation that could lead to trade sanctions on

China by the U.S. may be postponed amid the two countries' stronger cooperation

on Korean peninsula denuclearization and objections from the U.S. business

community. However, some China trade experts interviewed by MNI believe

small-scale sanctions are possible in the future. As one of the most

interconnected bilateral trading partnerships, the U.S.-China relationship seems

to have cooled slightly, and analysts interviewed by MNI said conflicts may

continue to emerge between the two, especially with President Donald Trump in

the White House.

     TOP NEWS: Stronger valuation effects pushed the level of China's

foreign-exchange reserves to the highest since last October, data released late

Monday showed. Foreign-exchange reserves surged $23.93 billion in July to $3.081

trillion, the sixth consecutive monthly increase. June's increase was just $3.22

billion. The valuation effect was the main reason behind the surge, SAFE said.

     RATES: The People's Bank of China injected CNY70 billion in seven-day

reverse repos and CNY70 billion in 14-day reverse repos via open-market

operations. This resulted in a net zero injection/drain for the day. A total of

CNY140 billion in reverse repos matures Tuesday. This is the seventh consecutive

trading day the PBOC didn't inject liquidity at OMOs. The CFETS-ICAP

money-market sentiment index ended at 47 Monday compared with 32 at Friday's

close. The lower the reading the better liquidity in the interbank market.

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

at 2.8527% Tuesday, higher than Monday's average of 2.7838%. The overnight repo

average was at 2.8008%, also higher than Monday's 2.7450%.

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

China set a stronger daily fixing. The yuan was last at 6.7067 against the U.S.

unit, compared with the official closing price of 6.7182 on Monday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.7184, stronger than

Monday's 6.7228.

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

3.6181%, down from the previous close of 3.6594%, according to Wind, a financial

data provider.

     STOCKS: Stocks were up, led higher by the non-ferrous metal and pork

sectors. The benchmark Shanghai Composite Index closed up 0.07% at 3,281.87.

Hong Kong's Hang Seng Index was last at 0.45% higher to 27,814.07.

     FROM THE PRESS: Debt-to-equity swaps should be a complementary policy for

dealing with corporate debt -- not a main measure for deleveraging, the Economic

Information Daily said in a front-page commentary Tuesday. Swaps will accelerate

in the second half of this year with support from authorities but an abrupt or

excessive expansion will increase "moral hazard" to economic development, it

said. Debt problems result from low returns from investment in the real economy

-- which can't be solved by swaps alone. Market-oriented and legal guidance is

necessary for swaps to have an effect on deleveraging, it said. (Economic

Information Daily)

     The nonperforming loans ratio at commercial banks will continue to rise on

poor asset quality, the Financial News, a journal run by the People's Bank of

China, reported Tuesday, quoting a report by the China Banking Association. Bank

assets and liabilities growth was maintained at 10% in the past two years, the

report said. Lower interest margins and higher credit costs are challenges to

increasing bank net profits. Market and liquidity risks will increase as the

financial environment changes and interest and foreign exchange rates are

volatile, the report said. (Financial News)

     The supply of land should be increased to help cool rising home prices in

Tier One cities, the 21st Century Business Herald reported Tuesday quoting the

former vice president of the Development Research Center of the State Council

Liu Shijin. Existing real-estate market regulations concentrate on the demand

side by restricting mortgages and purchases -- a short-term measure only, Liu

said. Changes on the supply side can alter market expectations for prices, Liu

said. Land available for residential construction should be increased to 40% of

the total land for urban construction by transferring some land at present zoned

industrial, Liu said. (21st Century Business Herald)

     Beijing's plan to introduce joint property ownership -- where homebuyers

and the government each own a share of homes but occupiers have full right of

use -- can prevent property-market risks and help people into their own homes,

the People's Daily said Tuesday. The plan aims to assist the overall property

market in the long term, the commentary said. Authorities need to prevent

speculation but still satisfy demand for home ownership, it said. (People's

Daily)

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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