China Press Digest: Friday, Sept. 22

     BEIJING (MNI) - The following are highlights from the China press for

Friday, Sept. 22:

     Steve Bannon flew to Beijing last week for a secret meeting with Wang

Qishan, considered the second most powerful Chinese Communist party official,

less than a month after the former chief White House strategist declared that

America was in an "economic war with China", the Financial Times reported

Friday, citing persons familiar with the situation. The two sides mainly talked

about economic nationalism and populist movements which was the subject of

Bannon's speech in Hong Kong at an investor conference hosted by CLSA, a Chinese

state-owned investment bank, the FT said. There was no connection to President

Donald Trump's upcoming visit to China in November, one source told the FT.

(Financial Times)

     The People's Bank of China will not change policy following the Federal

Reserve's decision to begin shrinking its balance sheet and will continue to

push forward deleveraging at a moderate pace, the Securities Daily, an official

securities journal run by the State Council, said in a front-page commentary on

Friday. The PBOC's balance sheet shrank by CNY1.1 trillion in the first three

months this year and fell again in August by CNY346.6 billion, with both

declines due mainly to a reduction in fiscal deposits at the central bank, the

newspaper said. In the deleveraging campaign, the PBOC is dealing with liquidity

problems via money market instruments and is also enhancing credit distribution,

so it is not the proper time to talk about a reserve requirement ratio cut, the

commentary argued. (Securities Daily)

     The theory that S&P Global Ratings used in its downgrading of China's

sovereign rating on Thursday has not kept pace with the rapid economic

development of China and so does not reflect the current economic situation,

particularly the economic growth trend of the country, in a timely and

comprehensive way, the Xinhua News Agency reported Friday. S&P said risks to the

Chinese financial system had increased based on changes in a number of

short-term indicators, a method that "needs further discussion", the report

said, citing analysts. Although the decision by S&P was a "misjudgment", China

sees it as a "well-intentioned warning", the report said, so the country will

further strengthen its campaigns to deleverage the financial system and prevent

risks from local government debt. The rating downgrade will not influence

China's attraction as a destination for foreign investment, particularly given

China is in the process of optimizing the investment environment, the report

argued.(Xinhua News Agency)

     The Federal Reserve's decision to begin shrinking its balance sheet will

impact the interest rate differential between China and the U.S. by pushing up

U.S. bond yields, the official People's Daily reported Friday. The interest rate

differential between 10-year government securities is expected to remain between

120 and 150 basis points, so the scale of capital outflows from China will

remain under control, the report said, citing Zhao Qingming, chief economist

with Research Institutes of China Financial Futures Exchange. The country's

foreign exchange reserves are sufficient and its capital account is being

effectively managed, so China can actively defend against any external shocks

and maintain the independence of its monetary policy, Zhao told the newspaper.

(People's Daily)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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