China Press Digest: Tuesday, August 29

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

Tuesday, August 29:

     As the Chinese interbank market celebrates its 20th anniversary, China will

stick to its plan for improving the interbank bond market, Pan Gongsheng, deputy

governor of the People's Bank of China told the Financial News in an interview

published Tuesday. The PBOC needs to stabilize market expectations by providing

a stable and predictable policy environment for market participants, speed up

the development of new bond market products, continue to introduce new

innovative derivatives to enhance investment tools, and improve the trading

system. He stressed the need for additional controls on risk. (Financial News)

     Experts say the yuan exchange rate will remain relatively stable but could

continue its periodic strengthening against the dollar seen recently, the

Economic Information Daily reported Tuesday. The People's Bank of China set the

yuan central parity against the dollar at 6.6353 Monday, the highest since

August 19 last year, and Monday's intraday high of 6.6310 was the strongest this

year, the newspaper noted. An analyst from the Bank of China International

Finance Research Center told the newspaper the rise was due to China's strong

economic fundamentals, the weakening of the dollar, the recent strengthening of

controls on Chinese companies' cross-border capital outflows, and the

introduction of the counter-cyclical adjustment factor in the PBOC's daily

parity calculation. Han Huishi, a well-known yuan analyst was quoted as saying

the PBOC's recent actions have made the market believe the Chinese government

will maintain the basic stability of the yuan in the medium to long term. But

Han pointed out that only yuan depreciation expectations have dropped, which

does not mean that projections for yuan strengthening have become dominant.

(Economic Information Daily)

     The issuance of treasury bonds should be the main method for local

governments to raise new funding and so alleviate the need for illegal

financing, the Economic Information Daily said in a commentary Tuesday. The

recent rapid expansion of financing by local governments is due to their need to

invest in local infrastructure, the costs of which are difficult for them to

repay given the lack of support from fiscal revenue, the report said. This has

prompted local governments to use illegal financing methods. The newspaper

stressed preventing illegal local government financing does not mean abandoning

infrastructure improvements nor giving up on local governments' function in

boosting economic growth, but rather redirecting financing to legal methods,

such as issuance of treasury bonds. (Economic Information Daily)

     Three central state-owned enterprises have said they would establish or

expand corporate treasury centers in Hong Kong, while 30 others are considering

the option, Norman Chan Tak-lam, chief executive of Hong Kong Monetary

Authority, said Monday in an article published on the authority's website. The

official said the three SOEs are: China Huaneng Group; State Power Investment

Corporation; and China Three Gorges Corporation. He attributed their move to a

tax rule change last June, when the Hong Kong government reduced by 50% the

profits tax rate for specified activities of qualified corporate treasury

centers. (South China Morning Post)

--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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