MNI China Daily Summary: Wednesday, August 16

     TOPS NEWS: China will "take measures to protect our legitimate rights and

interests" in response to the decision by U.S. President Donald Trump to

green-light an investigation into China's intellectual property trade practices,

China's Foreign Ministry said Tuesday. The U.S. "cannot destroy multilateral

trade rules" as outlined by the World Trade Organization, Foreign Ministry

spokeswoman Hua Chunying said at a regular press briefing, a rebuke to the U.S.

administration's invoking a little-used provision of the U.S. Trade Act of 1974

in an attempt to stop what it views as China's widespread infringement of

intellectual property rights and forced technology transfers by U.S. companies.

     TOP NEWS: China is on a "more sustainable growth path," with regulatory

reforms underpinning growth, although growth momentum is likely to wane over the

rest of the year, the International Monetary Fund (IMF) said in its annual

Article IV consultation on China published Tuesday. "Important supervisory and

regulatory action is being taken against financial sector risks, and corporate

debt is growing more slowly, reflecting restructuring initiatives and

overcapacity reduction," the IMF said in its report. The IMF has projected that

China's economy will grow 6.7% this year, higher than the Chinese government's

targeted rate of around 6.5%.

     POLICY: The foreign-exchange purchase position of the People's Bank of

China fell slightly in July, fueling expectations the purchase position will go

up in the near future. The PBOC's foreign-exchange position fell CNY4.647

billion to CNY21.51 trillion in July, the 21th straight monthly drop, compared

with a decrease of CNY34.315 billion in June, according to data from the PBOC

released on Wednesday.

     DATA: China's non-financial outbound direct investment (ODI) plunged 44.3%

y/y to $57.2 billion in the first seven months of the year, the Ministry of

Commerce said on Tuesday, ascribing the drop to a curb in "irrational

investments." The decline was slightly smaller than the 45.8% y/y decrease in

ODI in dollar terms recorded in the first six months of the year. The "One Belt,

One Road" initiative continued to drive China's ODI in the January-July period,

the ministry said.

     DATA: July new loan issuance totaled CNY825.5 billion, lower than the

CNY1.54 trillion in June but higher than the MNI market survey median

expectation of CNY800 billion. New loan growth was the lowest since November

last year.

     DATA: Total social financing -- a gauge of total credit and liquidity --

slowed to CNY1.22 trillion in July, down from CNY1.78 trillion in June but

higher than the MNI median forecast of CNY1.075 trillion.

     DATA: China's M2 money supply growth in July hit another historic low,

while corporate bond financing rebounded strongly, according to central bank

statistics. M2 money supply grew 9.2% year-on-year to CNY162.9 trillion, a new

record low growth rate, compared with the 9.4% growth rate in June. Analysts

surveyed by MNI had expected M2 growth to tick up to 9.5%.

     DATA: M1 money supply rose 15.3% year-on-year to CNY51.05 trillion in July,

compared with 15.0% growth in June. M0 rose 6.1% year-on-year to CNY6.71

trillion, compared with a 6.6% increase in June.

     DATA: Outstanding loans stood at CNY115.4 trillion at the end of July,

13.2% higher than the year-earlier period, compared with a 12.9% increase at the

end of June. Outstanding deposits grew 9.4% year-on-year to CNY160.48 trillion,

compared with 9.2% growth in June.

     RATES: The People's Bank of China injected CNY150 billion in seven-day

reverse repos and CNY130 billion in 14-day reverse repos via open-market

operations, resulting in a net injection of CNY180 billion for the day as a

total of CNY100 billion in reverse repos matured. Wednesday was the first day

since last Thursday that the PBOC has made a net injection via its OMOs. The

CFETS-ICAP money-market sentiment index ended at 65 on Tuesday -- jumping from

48 at Monday's close -- because of fewer net injections by the PBOC recently and

the start of tax payments and reserve payments for the month. The lower the

reading, the better the liquidity conditions in the interbank market.

     RATES: Money market rates went up Wednesday after the PBOC injected a net

CNY180 billion via its open-market operations. The seven-day repo average was

last at 2.8957%, up from Tuesday's average of 2.8455%. The overnight repo

average was at 2.8345%, compared with Tuesday's 2.8329%.

     YUAN: The yuan fell against the U.S. dollar Wednesday morning after the

People's Bank of China set a weaker daily fixing. The yuan was last at 6.6926

against the U.S. unit, dropping 0.23% compared with the official closing price

of 6.6771 on Tuesday. The People's Bank of China set the yuan central parity

rate against the U.S. dollar at 6.6779 on Wednesday, weaker than Tuesday's

6.6689.

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

3.5829%, up from the previous close of 3.5754%, according to Wind, a financial

data provider.

     BONDS: The Ministry of Finance reopened and sold CNY36 billion in

seven-year treasury bonds in an auction Wednesday at a yield of 3.6518%, which

was lower than the yield of 3.6595% for bonds with the same maturity in the

secondary market on Tuesday.

     STOCKS: Stocks fell, led lower by the non-ferrous metals and paper

manufacturing sectors. The benchmark Shanghai Composite Index closed down 0.15%

at 3,246.45. Hong Kong's Hang Seng Index was 0.65% higher at 27,351.86

     FROM THE PRESS: The military standoff between India and China over their

disputed border escalated with an altercation Tuesday near Pangong Lake that

resulted in minor injuries on both sides, the South China Morning Post reported

Wednesday. The incident was confirmed by police in the disputed region. China

and India have been locked in a two-month standoff at another part of their

3,500-kilometer (2,175-mile) border. In June, India tried to stop China from

building a road in the area. An Indian government minister who was not

identified told the newspaper that the Indian government had to act to stop the

Chinese road construction as "it had come too close for comfort." (South China

Morning Post)

     The cooling down of the property market will not affect Chinese economic

growth but instead will be beneficial to the quality and efficiency of the

economy, the Securities Daily said in a front-page commentary Wednesday.

Economic data released Monday showed that property investment this year through

July grew 7.9% from the same period last year, 0.6 percentage point lower than

in the January-to-June period. It was mainly the service sector that supported

China's gross domestic product growth of 6.9% in the first half, which was 0.2

percentage point higher than that in the first half of last year, the commentary

said. On the other hand, the property sector contributed 6.2% to economic

growth, while the proportion in the same period last year was 8.2%. It shows

that a reasonable cooling of the property market will not drag down the speed of

economic growth, the newspaper argued. Chinese GDP will grow smoothly while

maintaining stability, and even a slowdown of 0.1 to 0.2 percentage point would

be, in fact, "a reasonable and normal fluctuation," it said. (Securities Daily)

     Chinese investors have been buying large amounts of real estate assets in

London, spending around CNY31.7 billion in the 90 days beginning May 11 based on

the May exchange rate, the Securities Daily reported Wednesday. Depreciation of

the pound caused by the effects of Britain's plan to leave the European Union

makes it an opportune time for Chinese investors to buy into London's property

market, the report said. Chinese investors mainly invest in commercial and

residential property, both for risk prevention and because of strong liquidity

conditions in London, the report added. Although Chinese domestic supervision of

overseas investment is tightening, Chinese investors' asset allocations abroad

will not shrink because they need to invest the money accumulated during China's

high-speed economic growth in recent years, the report said. (Securities Daily)

     Some local governments' debt ratios are high enough to approach or surpass

the warning level, Gu Shengzu, vice chairman of the China Democratic National

Construction Association, formed by members of the economic sector, wrote in an

article published in the People's Daily on Wednesday. He said the observation

was based on his research and on-site examinations. The main problem of local

government debt is that some regions rely too heavily on leverage for investment

and that the pace of growth is too fast for some regions' outstanding debt --

sometimes doubling from the year before -- causing substantial pressure on their

debt repayment ability, Gu said. He stressed that financial and fiscal risks

from local government debt deserve much attention, and China must eliminate and

prevent them actively and steadily. (People's Daily)

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

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

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