MNI China Daily Summary: Wednesday, August 15

     TOP NEWS: China's economy appeared under pressure in July, as fixed-asset

investment fell to an historical low, despite the property market offering some

support. Infrastructure investment will be a key factor to gauge China's

economic growth for the remainder of this year. But current robust growth of the

property market may not be sustainable as the government stresses credit will

not be "pumped" into the sector.

     DATA: The average new home price of 70 major Chinese cities accelerated

both on a monthly and yearly basis in July. The data, excluding subsidised

housing units, grew 1.2% month-on-month, up from the 1.1% gain in June, MNI

calculations show. 

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY383 billion via

middle-term lending facility (MLF) loans, according to a statement on the PBOC's

website. A total of CNY336.5 billion MLF matured today. CFETS-ICAP's

money-market sentiment index closed at 34 on Tuesday, down from 40 on Monday.

     MONEY MARKET RATES: The benchmark 7-day deposit repo average fell to

2.5681% on Wednesday from 2.5874% on Tuesday; Overnight average increased to

2.3318% from 2.3119% on Tuesday: Wind Information.

     YUAN: The yuan weakened to 6.8900 against the U.S. dollar on Wednesday from

yesterday's 6.8830 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.8856 on Wednesday, weaker than Tuesday's 6.8695.

The central bank has set the fixing weaker for five trading days in a row. 

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

3.5400%, down from the previous close of 3.5800%, according to Wind Information.

     STOCKS: Shares in Shanghai continued to slide despite easing concerns about

the financial crisis in Turkey. Shanghai Composite Index closed 2.07% lower at

2,723.26, led by banking and insurance sector, marking the largest daily fall in

the past one month and half. Hong Kong's Hang Seng Index decreased 1.60% to

27,308.32. 

     FROM THE PRESS: The PBOC should adjust market liquidity and exchange rate

formation mechanisms, and guide market expectations to manage large fluctuations

in the exchange rate, said Lian Ping, chief economist of Bank of Communications,

according to China Securities Journal. China should insist on the liberalisation

of the yuan to gradually strengthen the yuan's flexibility and achieve a

floating exchange rate system, Lian said, according to the newspaper. The

internationalisation of the yuan should rely on China's real economy rather than

on the currency's strength, in order to develop cross-border trades and foreign

direct investment, Lian added, according to the newspaper.

     Ministry of Finance (MOF) urges local governments to accelerate their

issuing of special government bonds, Shanghai Securities News reported. An MOF

statement was released after infrastructure investment growth recorded a fall to

5.7% in Jan-July from 12.4% in Jan-April. The CNY1.35 trillion in additional

special government bonds this year will mainly be used on targeted poverty

alleviation, shantytown renovation and other projects in progress, the newspaper

said, citing Liu Wei, vice minister of the MOF. A pick-up in the pace of local

government bonds issuance will strengthen local governments' financing

capabilities, expand consumption, and lower financial risks, said Zhang Yiqun,

director of Institute of Fiscal Science of Jilin Province, according to the

newspaper.

     The slowdown in China's consumption growth is inevitable considering

consumption upgrades and structural adjustments, as indicated by July's growth

coming in at 9.3%, unchanged from the first half of the year, 21st Century

Business Herald said in a commentary. China should not stimulate consumption

with short-term policies and distort the economic structure, the newspaper said.

To elevate consumption, China must lower housing costs to release room for

individual consumption, and must significantly lower taxes to increase

individual disposable income, the newspaper said.

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

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

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