China Press Digest: Wednesday, August 23

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

Wednesday, Aug. 23:

     Deleveraging, particularly reducing the high leverage ratio of companies,

will be a long-term task, the Financial News, a journal run by the People's Bank

of China, said in the front page commentary on Wednesday. Heavy financial

burdens and high debt risks still exist in some companies, although the overall

corporate leverage ratio has declined, the commentary noted, adding the

acceleration of deleveraging in state-owned enterprises will be most important

task to advance corporate deleveraging in the period ahead. But deleveraging is

a gradual process and needs to avoid a squeeze on credit and investment that

would hurt economic growth, the commentary argued. The campaign should control

capital injections and optimize funding structures, while cracking down on the

"invisible debt" of local governments and deepening reform of SOEs, the

commentary argued. (Financial News)

     Interbank transactions should serve banks' liquidity management and not be

a tool for speculative arbitrage, the Economic Information Daily said in the

front page commentary on Wednesday. Financial institutions should be careful to

avoid excessive reliance on wholesale funding, the commentary noted. Bonds and

non-standard assets supported by wholesale funding rely heavily on adequate

financial market liquidity, so any disruption of access to wholesale funding for

some institutions could easily trigger a risk for the market as a whole, the

commentary warned. Regulators should establish relevant rules in a timely manner

to curb the irrational interbank arbitrage, the commentary argued. (Economic

Information Daily)

     Full-year economic growth will be higher than the government's target even

though the economy is likely to see a slight slowdown in the second half of the

year, the 21st Century Business Herald reported Wednesday, citing Wang Yiming,

deputy director of the Development Research Center of the State Council. Several

factors will cause growth to slow in the period ahead, including a deceleration

in investment, dragged down by the property and infrastructure sectors, Wang

said. Export growth will soften from the previous strong performance and the

manufacturing restocking process will gradually slow. In addition, a falling

Producer Price Index will weaken the profit rebound of upstream companies, Wang

said. (21st Century Business Herald)

     The volume of green bond issuance fell sharply in the first half of the

year due to rising money market rates, the Securities Times reported Wednesday.

As of Aug. 22, banks had issued a total of CNY58.4 billion in green bonds so far

this year, down from CNY92 billion in the same period last year, the report

said. Most big banks have stopped issuance as green bonds' rate advantage has

dropped, while smaller banks still see green bonds as a good way to raise funds

given tighter regulations on their funding raising via negotiable certificates

of deposit, the report noted. (Securities Times)

     Banks' low excess reserve ratios could increase volatility in interbank

market liquidity and so reduce banks' willingness to lend, the China Securities

Journal warned in a report Wednesday. Banks' aggregate excess reserve ratio fell

to only 1% in the middle of August, which was a main reason for recent tight

liquidity, the report noted. One principle of the deleveraging campaign is that

the PBOC will have a greater tolerance for a low excess reserve ratio. This

means liquidity volatility will continue over the long term unless the central

bank's foreign exchange purchase position increases sharply or the PBOC injects

a large amount of liquidity, such as via a reserve requirement ratio cut, the

report argued. Given the prospect of continued liquidity volatility, banks need

to improve their management of liabilities and liquidity as soon as possible.

(China Securities Journal)

--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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