China Press Digest: Monday, August 28

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

Monday, August 28:

     Xu Zhong, head of the research department at the People's Bank of China,

wrote in a blog commentary published Sunday that the disorder in China's

financial sector in fact reflects problems in the real economy and the whole

financial system. Xu said the government's excessive intervention in the market

is a problem, adding China lacks a system relying on personal credit instead of

the current situation relying on collective credit. "Invisible" government

insurance on wealth management products still exists, Xu said, leading to overly

favorable ratings for some companies. Financial institutions' staff salaries,

their status within the industry, and the economic tasks allocated to them by

the government, are all linked directly to their size, causing an excess

emphasis on the pursuit of size by financial institutions, Xu said. He also

stressed the existence of zombie companies was partly due to the continuing

financial support of financial institutions, which are trying to hide bad loans.

At the same time local government and financial regulators are also trying to

hide bad loans because their revelation of their existence would highlight their

lack of proper management and regulatory oversight, Xu said.

     Chinese Premier Li Keqiang stressed Friday the need for China to upgrade

its manufacturing sector, the People's Daily reported Monday. During a meeting

with officials and companies on economic restructuring to improve the sector, Li

said manufacturing is the foundation for economic development and China's

economic transformation. There needs to be a new industrialization that creates

new, high quality "made in China" products. The problem is that while China's

manufacturing sector is large, it is not strong enough, so the task of upgrading

the sector is urgent, Li said. China needs to stick to its "Made In China 2025"

plan to boost targeted manufacturing sectors, eliminate out-of-date economic

segments and facilitate the move of Chinese manufacturing to produce "high-end"

products. He stressed innovation is necessary for the upgrading and the

government needs to strengthen supervision to protect intellectual property

rights protection while helping reduce financing pressure on companies.

(People's Daily)

     China is speeding up deleveraging of state-owned enterprises (SOEs), the

Economic Information Daily, a newspaper under the official Xinhua News Agency,

said Monday in a front-page report. The newspaper stressed the Chinese

government is "taking real measures" in its SOE reform plan. The State-owned

Assets Supervision and Administration Commission of the State Council, which

manages SOEs, said that it would reduce their liability ratios, the newspaper

said. SOEs will control the size of their debt and reduce leverage.

Debt-to-equity swaps for SOEs will accelerate, with several SOEs already signing

debt-to-equity agreements with banks, according to the newspaper. The Daily

stressed high leverage is still a serious problem for SOEs though their

asset-to-liability ratio dropped by 0.2 percentage point year-to-date in July

compared with the beginning of this year. (Economic Information Daily)

     Chinese companies' outbound investment needs to be stabilized to ensure the

development of the Chinese economy, the official People's Daily said Monday. The

government's recent clamp-down on unreasonable outbound investment is not aimed

at curtailing an increase of outbound investment, but rather to control risks

and prevent financial bubbles, the newspaper said. China's national strategy to

encourage companies to "go out" has not changed. Zhang Hanya, researcher at the

investment research department of the National Development and Reform

Commission, told the newspaper the 44.3% y/y drop in outbound investment from

January to July was partly due to a high base in the same period last year. Many

Chinese companies lack deep knowledge of local policies and laws overseas,

affecting their profits and leading to the loss Chinese foreign exchange, he

said. China encourages Chinese companies to invest in "One Belt One Road"

projects, so the overall outbound investment volume will stabilize, he said.

(People's Daily)

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

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

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