MNI China Daily Summary: Wednesday, Aug 8

     TOP NEWS: The People's Bank of China (PBOC) is expected to launch a

resolute defense of the yuan should the currency fall near a key psychological

level against the U.S. dollar, sources close to the central bank told MNI. "If

USDCNY rapidly goes near 7.0, such volatility will have exceeded the PBOC's

comfort zone," a source familiar with the central bank's operations told MNI. 

     DATA: China's foreign exchange reserves increased for a second month in

July on asset price changes, according to a statement by the PBOC Tuesday. FX

reserves rose by $5.82 billion to $3.12 trillion as of July 30, compared with an

increase of $1.51 billion in June.

     DATA: China released July trade data on Wednesday. July exports rose by

12.2% y/y to USD215.57 billion, above the 11.3% y/y growth in June and MNI's

survey's 10.5% y/y growth. Imports in July jumped 27.3% y/y increase to

USD187.52 billion, up from last month's 14.1% y/y growth and well above market's

survey of 17.6%.

     POLICY: ANZ noted that "portfolio flows into Asia ex-China turned positive

despite the escalation in U.S.-China trade tensions in July. Inflows were

concentrated in the fixed income market, while equities saw outflows for the

sixth consecutive month, albeit at a modest pace. A more meaningful return of

inflows will hinge on an easing in trade tensions or firm signs that growth in

the region can stay resilient."

     LIQUIDITY: No net changes to liquidity after the PBOC skipped open market

operations (OMO) on Wednesday and no reverse repos matured. The PBOC has not

conducted OMOs for more than two weeks. CFETS-ICAP's money-market sentiment

index closed at 30 on Tuesday, up from 25 on Monday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.2604% on

Wednesday from 2.2490% on Tuesday; overnight average decreased to 1.4044% from

1.5835% on Tuesday: Wind Information.

     YUAN: The yuan strengthened to 6.8140 against the U.S. dollar on Wednesday

from Tuesday's 6.8340 closing, following today's stronger fixing. The PBOC set

the yuan central parity at 6.8313, compared with Tuesday's 6.8431, marking the

second day this week for a stronger fixing. CNH solidified the earlier gain

after the PBOC met with domestic banks on Monday, to warn them against herd

behavior of the yuan. 

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

3.5175%, up from the previous close of 3.5000%, according to Wind Information.

     STOCKS: Mainland China stocks were hampered by the formalization of a 25%

U.S. tariff on $16 billion worth of Chinese goods. Shanghai Composite Index

closed 1.27% lower at 2,744.07, led by electronics shares. Hong Kong's Hang Seng

Index rose 0.17% to 28,296.15.

     FROM THE PRESS: Some countries made China a scapegoat for trade deficit

instead of promoting fiscal consolidation, initiating structural reform and

elevating overall level of savings, state-run Economic Information Daily said in

a commentary. Global trade balance can only be achieved by each country's

economic development, structural enhancement and trade liberalization rather

than protectionist measures, the daily said. China wont' pursue trade surplus

but will increase imports to promote balance of payments on its current account.

Countries that initiated trade frictions would not be able to enjoy the benefits

of China's further opening up, the newspaper said.

     While market rates decline this year, financing costs for the real economy

are still relatively high, as credit parks in government bonds and money

markets, Shanghai Securities News reported, citing Wen Bin, chief analyst of

China Minsheng Bank. Funds released from the CNY200 billion required reserve

ratio cut by the central bank last month may not flow to small businesses as

their high credit risks fail to satisfy banks' criteria, the newspaper said,

citing an unidentified manager in a state-owned bank. Financial institutions are

still inclined to buy higher-rated bonds, the newspaper said, citing a source in

a securities firm.

     China's local governments should persist with real estate regulation and

tailor policy measures to each city to stabilize land and housing prices and

expectations, China Securities Journal reported, citing an unidentified official

at the Ministry of Housing and Urban-Rural Development. Local governments should

adjust the structure of land and housing supply and demand as well as implement

differentiated credit and tax policies for home buyers, the official said,

according to the newspaper. Local governments should support reasonable housing

consumption, while curbing speculative purchases to direct and manage property

price expectations, the official said, according to the newspaper.

--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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