China Press Digest: Tuesday, September 5

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

Tuesday, Sept. 5:

     Foreign exchange reserves should be kept steady to stabilize market

expectations, the Financial News, a journal run by the People's Bank of China,

reported Tuesday, citing Zong Liang, chief economist of the Bank of China.

Regulators need to take effective measures to deal with sharp, short-term

volatility of the yuan exchange rate and prevent large changes in cross-border

capital flows, Zong said. Regulations for capital controls should be further

improved to stabilize the yuan exchange rate, while the transition to a

market-oriented exchange rate should be pushed forward, Zong argued. Regulators

should continue to guide market expectations and prepare for yuan appreciation

and Federal Reserve rate increases, Zong said. (Financial News)

     Liquidity in the interbank market has been tight in September as banks'

excess reserve ratio has continued to fall and the People's Bank of China has

further limited its injections, the China Securities Journal reported Tuesday.

With the macro-prudential assessment and liquidity coverage ratio test

approaching at the end of this month, there are major factors that will affect

liquidity, the newspaper said. Some seasonal effects, particularly the tendency

of Chinese people to deposit cash before the National Day holiday the first week

of October, will contribute to liquidity demand. But the PBOC is expected to

come to the rescue, if necessary, so the risk of a liquidity crunch is under

control. Still, financial institutions need to manage liquidity properly before

problems arise, the newspaper warned. The unexpected tightness in liquidity

recently appeared in the months after end-of-quarter, such as April and July,

and institutions should pay close attention, the newspaper said. (China

Securities Journal)

     Growth of banks' mortgage loans slowed in the first half of the year

because of strict government controls on the overheated property market, the

21st Century Business Herald reported Tuesday. The proportion of mortgages among

commercial banks' new loans fell to 51.4% in the January-to-June period, well

below the 91.43% in the same period last year. Corporate loans saw a strong

increase as the economy recovered and companies' demand for money accelerated.

Medium- and long-term corporate loans mainly went to government projects like

highway infrastructure, and to leasing and business services. Consumer loans

have become more difficult, with interest rates generally having risen by 30% to

40% in the first half, the report noted. (21st Century Business Herald)

     China's bond market will remain under pressure as issuance rises but demand

remains weak, the China Securities Journal reported Tuesday. After a sharp

decline in the first half of year, the issuance of both treasury and corporate

bonds is expected to jump in the rest of 2017, the newspaper predicted. But the

market's appetite is still limited, particularly among commercial banks, which

are the main buyers of bonds, at a time of tight liquidity and with a large

number of negotiable certificates of deposit maturing. Treasury bond issuance is

expected to reach as much as CNY6.15 trillion in the second half of the year,

which would be an increase of CNY570 billion compared with the same period last

year, while issuance of corporate bonds will accelerate after a wave of

cancellations in the first half. (China Securities Journal)

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

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

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

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