MNI China Daily Summary: Tuesday, July 31

     DATA: China's PMI fell for a second month to 51.2 in July from 51.5 in

June, below MNI's forecast of 51.3. The production index was 53.0, down from

53.6 m/m, due to the frequent adverse weather and equipment overhaul, Zhao

Qinghe, senior statistician at the National Bureau of Statistics, said in a

statement. New orders index dropped by 0.9 percentage point from June to 52.3,

the lowest in five months.

     POLICY: ANZ noted that "the broad moderation seen in both the (Chinese)

manufacturing and non-manufacturing PMIs in July were caused more by a

backtracking in China's domestic activities rather than the trade tensions with

the US. If the PMI continues to slow, it is unlikely that sequential GDP growth

in the second half of the year will match the 1.8% q/q seen in Q2."

     LIQUIDITY: The People's Bank of China (PBOC) drains net CNY30 billion

through reverse repos today, according to a statement on the PBOC's website. The

PBOC skipped its open market operations (OMO) today, citing that large fiscal

expenditure at the end of the month can offset the impact of maturing reverse

repos and maintain the liquidity at a high level. CFETS-ICAP's money-market

sentiment index closed at 32 on Monday, up from 29 on last Friday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.6180% on

Tuesday from 2.6238% on Monday; Overnight average decreased to 2.0515% from

2.1596% on Monday: Wind Information.

     YUAN: The yuan weakened to 6.8282 against the U.S. dollar on Tuesday from

Monday's 6.8256 closing, following today's weaker fixing. The PBOC set the yuan

central parity rate at 6.8165, compared with 6.8131 yesterday. Today's weaker

setting extended the monthly drop to more than 3%. USDCNH is trading just off

its highs of the day at 6.8350, with any break of the 6.8382 daily high likely

to trigger breakout to fresh highs given the contracting range formation.

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

3.4800%, down from the previous close of 3.5200%, according to Wind Information.

     STOCKS: Shares in Shanghai rebounded after falling four four trading days,

led by financial sector and infrastructure sector. Shanghai Composite Index

closed 0.26% higher at 2876.40. Hong Kong's Hang Seng Index decreased 0.50% to

28590.05. 

     FROM THE PRESS: Countries that pursues unilateralism will be isolated,

because trade liberalization is a consensus shared by the international

community, said Wang Yi, Chinese Foreign Minister, at a meeting with his British

counterpart, according to a statement on Ministry of Foreign Affairs (MOFA)

website. The U.S. has benefitted from China's trade surplus as 60% of the

surplus were made by foreign enterprises in China, Wang added. China welcomes

dialogues and negotiations with the U.S., though talks should be conducted on

the basis of equality and respect, Wang noted, according to MOFA.

     The yuan may continue to depreciate and test 6.9 this week, as the PBOC may

be inclined to let the market set the prices, China Securities Journal reported,

citing unidentified market participants. China's relatively small size of forex

reserve, strong U.S. economy and the euro zone's dovish monetary policy may

result in a strong U.S. dollar and downward pressure on the yuan in the third

quarter, the newspaper said citing a research report by Ming Ming, chief

economist of Citic Securities. China should reintroduce the countercyclical

factor in the pricing mechanism of central parity rate to secure the bottom of

the exchange rate and prevent the extent of the depreciation, the newspaper said

citing Ming.

     China should monitor the excessive housing price increases in tier-3/4

cities, Xinhua News Agency said in a commentary. Last month, property prices in

several tier-3 cities gained over 9.0% y/y, Xinhua said citing official data.

The continuous outflow of population in the smaller cities doesn't support the

rising prices of residential properties, Xinhua said, citing people it didn't

identify. Local government's regulations should prevent speculative investment

and improve effective housing supply, Xinhua added.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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