MNI China Daily Summary: Wednesday, August 1

     POLICY: China's Politburo, the most powerful body of the governing

Communist Party, said that fiscal policies must create a greater impact in

boosting domestic demand and structural adjustments. Ensuring stable and healthy

economic growth was the top agenda on the list. The government must implement

more forward-looking, flexible and effective policies, the Politburo said,

reiterating "proactive fiscal policy and prudent monetary policy."

     POLICY: Barclays said yesterday's "Politburo meeting made it clear that

China is still committed to carrying on deleveraging, as the meeting statement

stressed that the government remains focused on preventing and defusing major

risks. We view such statement as an affirmative reply to the increasing

uncertainty over the past few weeks, amid a series of policy easing

announcements." 

     LIQUIDITY: The People's Bank of China (PBOC) net drained CNY20 billion via

reverse repos, according to a statement on the PBOC website. The central bank

skipped open market operations (OMOs) citing that a relatively high level of

liquidity can absorb maturing reverse repos. CFETS-ICAP's money-market sentiment

index closed at 29 on Tuesday, down from 32 on Monday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average fell to 2.5733% on

Wednesday from 2.6152% on Tuesday; Overnight average decreased to 2.0122% from

2.0409% yesterday: Wind Information.

     YUAN: The yuan strengthened to 6.8220 against the U.S. dollar on Wednesday

from Tuesday's 6.8255 closing, despite weaker fixing. The PBOC set the yuan

central parity rate weaker for a fourth consecutive day at 6.8293, the lowest in

14 months, compared with Tuesday's 6.8165. USDCNH adds 200 pips on the latest

tariff headlines and eyes on Tuesday's high CNH6.8490, especially given that

Tuesday's CNH rally was triggered by reports that the U.S. & China are said to

seek a restart of discussions to defuse the trade war triggered risk on flows.

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

3.4600%, down from the previous close of 3.4750%, according to Wind Information.

     STOCKS: Shares declined in Shanghai as a result in low market sentiment on

reports that the Trump administration intends to propose a larger 25%tariff on

$200 billion worth of Chinese goods. Shanghai Composite Index closed 1.80% lower

at 2,824.53, led by real estate shares. Hong Kong's Hang Seng Index decreased

0.86% to 28,338.34.

     FROM THE PRESS: China's economy is slowing as indicated by a lower PMI

growth m/m in July, which signaled weaker domestic demand and greater external

markets, China Securities Journal reported. China should implement more active

fiscal policy, including issuing more government bonds to boost infrastructure

investment in the second half of the year, the newspaper said, citing Ming Ming,

chief analyst of Citic Securities. More active fiscal policy should optimize

allocation of resources and increase high-quality supply to adjust the

structural imbalance and vitalize the economy with the market's force, the

newspaper said citing Liu Shangxi, director of Chinese Academy of Fiscal

Sciences.

     China's monetary policy should maintain a high degree of independence as

domestic demand has taken a dominant role, said Lian Ping, chief economist of

Communications Bank, in a commentary on China's Securities Journal. The PBOC

should be more forward-looking and adjust monetary policy to individual cases to

maintain overall stability, Lian added. More proactive fiscal policy should

undertake the goal of expanding domestic demand in the next step, Lian said,

according to the newspaper. One or two more targeted cuts to required reserve

ratio by the end of the year would be desirable to increase available funds for

banks, Lian noted, according to the newspaper.

     Stability is the main objective for China's economy in the second half,

Xinhua News Agency reported, citing c comments by Wangjun, chief economist of

Zhongyuan Bank, on the Politburo meeting yesterday. China should strengthen the

coordination of macro policies to work mutually and accurately to echo the

Politburo's call for "more forward-looking and flexible policy," Xinhua said,

citing Zhang Yansheng, chief analyst of China Center for International Economic

Exchanges (CCIEE). The real economy demands both prudent and sufficient

liquidity and a more efficient transmission mechanism of funds to ensure

financing and prevent risks, Xinhua said, citing commentators including Zeng

Gang, a senior researcher at Chinese Academy of Social Science.

--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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