China Press Digest: Wednesday, September 6

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

Wednesday, Sept. 6:

     The increasing reliance on algorithmic models could be creating a major

risk of market disruption by underpricing geopolitical risks, the Australian

Financial Review warned in a report Wednesday. The more investors rely on such

models, the more likely it is that the algorithms with resemble each other - for

instance, by responding more to changes in the outlook for interest rates than

to growing geopolitical risks, the report argued. On Tuesday, the yield on

benchmark 10 year U.S. Treasury bonds slumped to a 2017 low of 2.07% even as

investors were stocking up on "safe haven" assets - such as bonds and gold -

amid rising tensions between the U.S. and North Korea. Some analysts worry that

U.S. bond yields are reacting more to the comments by Federal Reserve officials

than to the threat of a military confrontation with North Korea, indicating

there is a major, algorithm-induced mispricing of risk in the financial markets.

This, in turn, could run the risk of a situation like that in 2007, when

algorithm-based trading by LTCM and other firms caused a market crash that

required government intervention, the report argued. (Australian Financial

Review)

     The strong appreciation of the yuan exchange rate opens more leeway for

monetary policy so a required reserve ratio cut has become a policy option, the

21st Century Business Herald reported Wednesday, citing Guan Tao, former head of

the balance of payments division at the State Administration of Foreign Exchange

(SAFE) and now a research fellow with the 40Forum think tank, and Ding Zhijie,

assistant president of the University of International Business and Economics.

The current upward momentum of the yuan exchange rate has several positive

effects, including curbing capital outflows and reversing one-way depreciation

expectations, Guan said. The yuan exchange rate's reference to a trade-weighted

basket of 24 currencies is just part of the transition to a floating exchange

rate. The influence of a strong yuan on exports should be dealt with in a

market-oriented way and the financial market should not count on the

"counter-cyclic factor" to solve the problem, Guan noted. Cutting the RRR

remains a possible choice to inject liquidity and would be an important move to

normalize the currency policy, Ding said. (21st Century Business Herald)

     Real estate developers have not slowed the pace of land purchases, even

after the imposition of stricter controls on the sector, so property investment

growth may beat expectations this year, the Shanghai Securities News reported

Wednesday. Land sales in 300 cities totaled CNY2.20 trillion in the first eight

months, a gain of 34% year-on-year. This indicates how optimistic developers are

about the outlook for the sector, the report said. The top 60 real estate

companies listing on the mainland or Hong Kong stock markets invested CNY1.034

trillion to buy land in the first eight months, fully 52% more than CNY682

billion in the same period last year, the report noted. Investment growth will

edge down slightly to 6.3% to 6.5% y/y growth in 2017, from the 7.4% gain posted

last year. (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

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