MNI China Daily Summary: Wednesday, August 9

     TOPS NEWS: Consumer prices and factory inflation in China showed stable

growth in July despite falling below expectations, with month-on-month gains for

both putting an end to consecutive m/m declines, data released by the National

Bureau of Statistics (NBS) on Wednesday show. The consumer price index (CPI),

which gauges consumer price inflation, gained 1.4% y/y in July, lower than the

1.5% growth in both May and June and below the 1.6% median projection by

analysts in an MNI survey. The PPI in July accelerated 5.5% y/y, matching the

levels of the previous two months but lower than the 5.6% median expectation in

an MNI survey.

     TOP NEWS: The People's Bank of China injected CNY70 billion in seven-day

reverse repos and CNY70 billion in 14-day reverse repos via open-market

operations. This resulted in a net zero injection/drain for the day, as a total

of CNY140 billion in reverse repos matured on Wednesday. It was the eighth

consecutive trading day the PBOC did not add liquidity via OMOs. The CFETS-ICAP

money-market sentiment index ended at 43 Tuesday, compared with 47 at Monday's

close. The lower the reading, the better the liquidity in the interbank market.

     RATES: Money market rates were mixed. The seven-day repo average was last

at 2.9219%, higher than Tuesday's average of 2.8590%. The overnight repo average

was at 2.8109%, lower than Tuesday's 2.8013%.

     RATES: The Ministry of Finance reopened and sold CNY36 billion in five-year

treasury bonds at a yield of 3.6005% at an auction. The yield was lower than the

3.6149% bonds with the same maturity fetched in the secondary market on Tuesday.

The bonds were first auctioned July 13 with a coupon of 3.47%.

     RATES: The Ministry of Finance reopened and sold CNY28 billion in two-year

treasury bonds with a yield of 3.4230% at an auction. The yield was lower than

the 3.4288% for bonds with the same maturity in the secondary market on Tuesday.

The bonds were first auctioned June 15 with a coupon of 3.62%.

     YUAN: The yuan rose against the U.S. dollar after the People's Bank of

China set a stronger daily fixing. The yuan was last at 6.6852 against the U.S.

unit, 0.27% stronger than the official closing price of 6.7035 on Tuesday. The

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

at 6.7075 Wednesday, the strongest since Oct. 10, when it stood at 6.7008. The

fixing was 0.16% higher than Tuesday's 6.7184.

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

3.6675%, up from the previous close of 3.6478%, according to Wind, a financial

data provider.

     STOCKS: Stocks fell, led lower by the steel sector and shares of securities

companies. The benchmark Shanghai Composite Index closed down 0.19% at 3,275.57.

Hong Kong's Hang Seng Index was 0.25% lower at 27,782.57.

     FROM THE PRESS: Many debt-to-equity swaps have been agreed since October

but few have been implemented, the Securities Daily reported Wednesday. As of

June 9, a total of 56 swap agreements had been signed involving CNY709.5

billion, but just 10, worth CNY73.45 billion, have been fulfilled, the report

said. A lack of rules guiding companies' smooth withdrawal from the capital

markets is the reason, the report said. The high cost of equity withdrawal is

another factor. Participants are mainly state-owned companies -- particularly

those with overcapacity, including steel and coal producers, the report said.

(Securities Daily)

     Banks are starting to increase bond holdings again as interbank liquidity

becomes looser and capital costs fall, the 21st Century Business Herald reported

Wednesday. A net CNY1.8 trillion was raised in the bond market in July -- the

highest since July 2016 -- after it fell in May, the report said. Total bond

issuance reached as much as CNY3.94 trillion in July -- the most since March

2106, it said. Financial institutions are actively holding bonds after demand

was restricted by tight interbank-transaction regulations in the first half of

the year. In the second half, banks will increase bond buying, the report said.

(21st Century Business Herald)

     The most important step to improving the yuan exchange-rate formation

mechanism is to optimize the market-oriented yuan fixing pricing system, the

China Securities Journal reported Wednesday. The yuan fixing pricing system

should better reflect demand and market changes as well as avoiding the

overreaction of market participants, the report said. The "counter-cyclical

factor" is necessary while the market is under pressure but will also influence

the marketization of the exchange rate. Increased opening up of China's forex

market to foreign participants is important. The volatility range of the

exchange rate may be widened at a moderate pace -- but that isn't urgent, the

report said. (China Securities Journal)

     Liquidity will be stable in August after the People's Bank of China's net

injections via open-market operations in July, the Economic Information Daily

reported Wednesday. Monetary policy will maintain a "neither-tight-nor-loose"

bias because deleveraging and risk prevention are the main objectives, it said.

In the long term, existing regulations will be maintained but deleveraging will

ease in a bid to reduce significant volatility in liquidity. The PBOC will

concentrate on short-term monetary instruments including seven-day reverse repos

to reduce funding costs in the real economy, the report noted. (Economic

Information Daily)

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

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

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