China Press Digest: Monday, September 4

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

Monday, Sep. 4:

     China strongly condemned North Korea's sixth and most powerful nuclear test

late Sunday morning, the South China Morning Post reported Sunday. The test

triggered a 6.3-magnitude quake followed by a 4.6-magnitude tremor, and was felt

throughout northeastern China. "The Chinese government resolutely opposes and

strongly condemns this," the Chinese foreign ministry said after North Korea

confirmed the test. "We urge North Korea to recognise the determination of the

international community to achieve a denuclearised Korean peninsula ... and to

return to the path of resolving conflicts through dialogue." China will continue

to implement UN sanctions against Pyongyang in a "comprehensive manner", the

ministry said. China's nuclear safety agency also started monitoring radiation

levels in its northeastern border areas on Sunday, the SCMP noted. China and

Russia agreed late Sunday to "appropriately deal with" the test, while Chinese

President Xi Jinping met his Russian counterpart Vladimir Putin in Xiamen,

Fujian province, ahead of Monday's BRICS leaders' summit, Xinhua reported.

(South China Morning Post/Xinhua)

     The coordination of fiscal and monetary policies needs to be improved to

stabilize inflation, boost the economy, ensure employment growth and achieve a

balance of international payments, the Financial News, a journal run by the

People's Bank of China, said in a commentary Monday. The two policies have

different functions and focuses but can be complementary and so should increase

interaction, the commentary argued. In the process of deleveraging and reducing

overcapacity, monetary policy should improve the distribution of financial

resources, while fiscal policy should enhance structural adjustments and control

the growth of local government debt. The key to effective financial reforms is

strengthening budget management and unifying fiscal and financial policies, the

commentary added. (Financial News)

     It is a good time for China to continue reform of its exchange rate system

because the economy is showing good momentum, capital flows have stabilized and

yuan depreciation expectations have largely reversed, Yu Yongding, a researcher

with the Chinese Academy of Social Sciences and a former member of the People's

Bank of China Monetary Policy Committee, said in an interview with China

Securities Journal published Monday. The authorities should implement measures

to deepen reform of the exchange rate formation mechanism as soon as possible to

achieve a floating yuan exchange rate, Yu noted. The influence of market

expectations on capital flows and the exchange rate should not be exaggerated

since economic fundamentals are the decisive element, Yu argued. Cross-border

capital flows have improved due to strict regulatory controls but there are

still challenges ahead, Yu warned. (China Securities Journal)

     Interbank funding costs for low-rated banks are likely to see a sharp rise

due to new regulations prohibiting issuance of the NCDs with maturity of more

than one year, the Shanghai Securities News reported Monday. The People's Bank

of China is also considering including NCD issuance in its quarterly

macro-prudential assessment of banks, which would increase the interest rate

spread for the NCDs issued by banks with different ratings, the report said. As

of September 3, the volume of the NCDs issued by banks rated lower than AA+

accounted to 13.7% of total outstanding NCDs, the report noted. Although the new

regulations do not prohibit money market funds from investing in NCDs, their

willingness to invest in lower-rated issues will obviously decline. Some small

banks have already started to reduce their issuance, the report added. (Shanghai

Securities News)

--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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]