MNI China Press Digest, July 14: Interest Rates, Stock, Houses

     BEIJING (MNI) - The following lists highlights from Chinese press reports

on Tuesday:

     China's central government should not let interest rates go too low in H2

as unreasonably low rates would give rise to a misallocation of financial

resources and arbitrage opportunities, according to Economic Information Daily.

Citing Dong Ximiao, a special analyst with the National Institution for Finance

and Development, the Daily said the central government should also dismiss the

unreasonable expectations of companies for low interest rates. In this

environment, regional banks would see pressure on their asset quality and on

capital levels amid the central government's campaign of "giving profits away to

the real economy". Some regional banks have also shown financial risks in H1,

Dong added.

     Banks across China are verifying if their clients invested borrowed money

into the bullish stock market after the banking regulator's call to ban illegal

off-floor financing, according to 21st Century Business Herald. Citing various

sources working at banks, the Herald said the targeted clients include both

companies and individuals, and some banks have asked individuals to provide

extra documentation to prove they would use loaned money in agreed ways. Despite

the checks, companies could still dodge regulation through connected

transactions and invest in the stock market, the Herald report said.

     Rapidly rising house prices in several cities may attract more home buyers

and lead to herd behaviour if the government does not re-tighten regulations,

Economic Daily said. In a commentary, the Daily said the rise in house prices

will shake the determination of companies to invest in the real economy,

jeopardizing employment. The government should step up financial monitoring and

other measures to keep real estate speculation under control.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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