MNI China Daily Summary: Wednesday, August 2

     TOPS NEWS: The United States is prepared to invoke a little-used provision

of a 1974 trade law to end what it sees as unfair Chinese trade practices, the

Wall Street Journal and other U.S. media outlets reported Wednesday. By invoking

the provision, the Trump administration would "force Beijing to crack down on

intellectual-property theft and ease requirements that American companies share

advanced technologies to gain entry to the Chinese market," the Wall Street

Journal report said. Reuters reported that the U.S. would use Section 301 of the

Trade Act of 1974 to unilaterally impose tariffs on China. Section 301 allows

the president to make the move to protect U.S. industries from "unfair trade

practices" of foreign countries. The Reuters report quoted an unidentified

senior Trump administration official as saying a decision on the matter by Trump

could come as early as this week.

     TOP NEWS: Mild inflation and political uncertainty in the U.S. will

continue to pressure the dollar index but the yuan still has room for

appreciation against the U.S. unit -- although not as much as in the first half

of the year, the China Securities Journal reported Wednesday, quoting analysts.

Changes in the yield gap between China and U.S. Treasury bonds, as well as the

recently added "counter-cyclical factor," were responsible for the increase in

the yuan fixing Monday by the People's Bank of China -- the strongest since Oct.

11, according to Guotai Junan Securities futures analyst Wang Yang.

Foreign-exchange traders said the appreciation of the yuan was very likely.

Although the dollar index may rebound if the U.S. Federal Reserve announces in

September another interest-rate increase and that it will shrink its balance

sheet, expectations for yuan depreciation have fallen significantly, Wang said.

(China Securities Journal)

     RATES: Money market rates were mixed on Wednesday after the PBOC's CNY120

billion liquidity injection via its open-market operations balanced out the same

amount in reverse repos that matured on Wednesday. The seven-day repo average

was last at 2.8578%, down from Tuesday's average of 2.9411%. The overnight repo

average was at 2.8589%, compared with Tuesday's 2.8235%.

     YUAN: The yuan fell against the U.S. dollar Wednesday after the People's

Bank of China set a weaker daily fixing. The yuan was last at 6.7261 against the

U.S. unit, compared with the official closing price of 6.7194 on Tuesday. The

People's Bank of China set the yuan central parity rate against the U.S. dollar

at 6.7205 Wednesday, modestly weaker than Tuesday's 6.7148.

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

3.7604%, down slightly from the previous close of 3.7611%, according to Wind, a

financial data provider.

     STOCKS: Stocks were down, led lower by the agriculture, civil engineering

construction and publishing sectors. The benchmark Shanghai Composite Index

closed 0.23% lower at 3,285.06. Hong Kong's Hang Seng Index was 0.59% higher at

27,701.72. 

     FROM THE PRESS: In the short to medium term China's economy should maintain

its stable status and positive trend, the Economic Information Daily, a

newspaper under the official Xinhua News Agency, said in a front-page commentary

Wednesday. The conclusion is based on stable consumption, foreign trade and

investment. However, the newspaper said the real challenges for the economy lay

in investment. A tightening of local-government debt may affect investment in

infrastructure, and the property market is slowing, too. Investment in

manufacturing is edging up but is relatively small, the commentary added. It is

difficult to make up for gaps left by the infrastructure and property sectors,

it said. (Economic Information Daily)

     No residential developments have received pre-sales permission in the past

two weeks and neither have there been any sales by lottery in Shanghai, the

Shanghai Securities News reported Wednesday. In mid-July the Shanghai government

announced a requirement for property developers to use lotteries for sales of

new property projects. Lotteries have been used in the past only when demand

exceeds supply. Now, developers are doubtful about using lotteries when demand

is less than supply, according to the newspaper. As of Monday, the inventory of

new residential units eligible for sale was 5.855 million square meters. Based

on sales of 686,000 square meters in June the inventory may be sold in eight

months, the Securities Daily said. This means property developers are observing

changes in the market before taking action, according to Centaline Property

analyst Lu Wenxi. (Shanghai Securities News)

     Liquidity in August will continue to be tight yet balanced, the Securities

Daily reported Wednesday. The People's Bank of China in July injected CNY360

billion of liquidity via its medium-term lending facility (MLF) and CNY13.981

billion via its standing lending facility (SLF), and also injected CNY58.3

billion via its pledged supplementary lending (PSL) facility into China

Development Bank, The Export-Import Bank of China and Agricultural Development

Bank of China. Reverse repo maturities, tax and dividends will affect liquidity

in August, the newspaper said. The use of MLF, PSL and SLF by the PBOC are

expected in August to keep liquidity levels stable as the bank experiments with

"creative macro-control methods," the report said, quoting an unidentified

trader from a state-owned commercial bank. (Securities Daily)

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

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

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