MNI China Daily Summary: Wednesday, July 25

     TOP NEWS: China is taking more aggressive action to stimulate its economy,

currently under threat from a broad domestic credit shrinkage and slowing

investment. "Pressure within the country is even bigger than the ones coming

from outside, so some previous measures, such as tough financial regulations,

must yield to economic growth first," a source close to top policymakers told

MNI. "All in all, we won't allow growth to fall much from the targeted 6.5%,"

said the source.

     LIQUIDITY: A net drain of CNY60 billion was resulted on Wednesday due to

the maturity of reverse repos. The People's Bank of China (PBOC) didn't conduct

open market operations (OMO) citing relatively high liquidity. CFETS-ICAP's

money-market sentiment index was 37 on Tuesday, unchanged from Monday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.6559%

from 2.6274% on Tuesday; Overnight average decreased to 2.5616% from 2.5650% on

Thursday: Wind Information.

     YUAN: The yuan strengthened to 6.7930 against the U.S. dollar from

Tuesday's 6.8100 closing, following today's weaker fixing. The PBOC set the yuan

central parity rate at 6.8040 compared with Tuesday's 6.7891, marking the lowest

since June 28 last year. USDCNH trades near its daily low at 6.7825 amid a broad

based rally in Asian FX. The broader uptrend remains in play but a close below

yesterday's low of 6.7905 would make a strong case for a reversal, with the

6.7600 area the next obstacle for the bears. With China increasingly turning to

fiscal stimulus to help support its economy, the fundamental outlook remains

yuan bearish.

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

3.5450%, down from the previous close of 3.5650%, according to Wind Information.

     STOCKS: Shares in Shanghai edged lower after three days of gains. Shanghai

Composite Index closed down 0.07% to 2903.65. Hong Kong's Hang Seng Index rose

1.02% to 28,955.97.

     FROM THE PRESS: Infrastructure investment is expected to rebound in the

second half after Premier Li Keqiang called for "more active" fiscal policy and

the further enhancement of financing channels, China Securities Journal

reported. The funding liquidity of infrastructure projects will improve as the

new asset management rules eased the restrictions on non-standard assets, the

newspaper said. However, China's economic growth is transforming to consumption-

and innovation-driven, and it won't rely on infrastructure investment, the Daily

added. Infrastructure investment should shift its focus from quantity to

quality, improving investment structure and efficiency, the daily said.

     The growth of social financing will be consistent with nominal GDP and not

likely to rebound sharply as Premier Li Keqiang reiterated that China will not

adopt strong stimulus, said Financial News, an official PBOC publication. China

should lower its consumption tax and structural tax for enterprises to echo

Premier Li's call for "more active" fiscal policy, said Li Jianjun, an expert in

international finance, according to the newspaper. Monetary policy should strike

a balance between easing and tightening, strengthen the support for small- and

micro-sized enterprises and lead funds into industries that promote China's

economic transformation, Li said, according to the newspaper.

     The depreciation of the yuan is a reflection of both internal and external

uncertainties and the imbalance between supply and demand, China Securities

Journal reported, citing institutions including Citic Securities. June's

disappointing economic data and the expectation of looser monetary policy added

pressure on the yuan amid the trade tensions, the newspaper said, citing Ming

Ming, chief analyst of Citic Securities. However, the yuan is not likely to fall

significantly as depreciation pressure eases, the newspaper said, citing GF

Securities.

--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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