China Press Digest: Monday, August 21

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

Aug. 21:

     Entrusted product transactions are recovering as the average yields of most

bond funds have exceeded those of bank deposits, and even some wealth management

products (WMPs), after a nine-month correction in the bond market, the China

Business News reported Sunday. Small and medium-sized banks are actively

investing in entrusted products to cover their costs, the report said. In

addition, under the government's financial deleveraging campaign, the pressure

on banks' WMPs and complicated structural products is increasing, providing an

opportunity for products offered by non-bank financial institutions, the report

said. NBFIs are eager to share the "big cake" of funds now invested in bank

WMPs, worth around CNY30 trillion, the report said. (China Business News)

     Yuan depreciation expectations have weakened, but not completely reversed,

the People's Daily reported Monday, noting it is normal for the yuan exchange

rate to experience a two-way fluctuation. Considering the Federal Reserve is

expected to continue to hike rates and start shrinking its balance sheet, the

U.S dollar will not continue to fall so the market should not be overly

optimistic about the impact of the external environment on the yuan exchange

rate, the report warned, citing analysts. Given the market is playing a more

decisive role in determining changes in the yuan exchange rate and Chinese

economic fundamentals are providing strong support, there is reason for the yuan

to appreciate further, the report said. The market should have a clear

understanding of the trend of the yuan exchange rate and not be confused by

irrational opinions, the report added. (People's Daily)

     The financial sector continues to face risks from regulatory arbitrage,

problematic connections between elements of the financial system and the rigid

payment structure of trust products, the Financial News, a journal run by the

People's Bank of China, reported Monday, citing Yin Yong, vice-president of the

Bank of China. Authorities should further clarify transaction rules,

particularly the requirements for qualified market participants, and improve

transparency, Yin said. Regulatory arbitrage needs to be fixed and violators

punished as regulatory coordination is enhanced, Yin argued. (Financial News)

     Bank transactions to add leverage and shun regulation must be dealt with to

clean up the mess in the interbank market, the People's Daily commented Monday.

Although the normal functioning of the financial sector is recovering as

regulators enhance their controls, it is still possible that financial entities

will resume irrational transactions, the commentary noted. In the near future,

the deleveraging campaign will prioritize state-owned companies, the commentary

said, adding risks from local government debt should also be resolved in a

positive way. The deleveraging in the financial sector should support the real

economy, but it must be done in an orderly and gradual way, with a precondition

of maintaining market stability. (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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