MNI China Daily Summary: Friday, August 23

     PBOC: The People's Bank of China (PBOC)'s market-oriented overhaul of its

interest rate framework should not be regarded as monetary easing and there is

little need to cut interest rates at present, a former director of the

statistics department of the PBOC told MNI. "The reform has two major purposes,

which are to smooth monetary policy transmission over the long term and to lower

the funding cost of the real economy over the short term," Sheng Songcheng said

in an interview. "This is different to a rate cut, since the central bank did

not touch its policy rates but rather enhanced its capacity to control real

economy lending rates." The central bank earlier this week replaced its

benchmark lending rate with its loan prime rate as the main reference for new

corporate loans. The PBOC also linked the LPR more closely to its one-year

medium-term lending facility, which tracks market prices more closely than the

old benchmark.

     LIQUIDITY: The PBOC injected CNY80 billion via 7-day reverse repos Friday,

adding liquidity for a tenth consecutive day. This offsets the maturing CNY80

billion reverse repos, leaving liquidity unchanged, according to Wind

Information. The injection aims to offset the issuance of local government

bonds, the maturity of local treasury's cash management as well as the reverse

repos, the PBOC said. The PBOC has injected a total of CNY270 billion via

reverse repos this week, which resulted in a net drain of CNY30 billion given

the maturity of CNY300 billion of reverse repos, Wind Information said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.6427% from Thursday's close of 2.6219%, Wind

Information showed. The overnight repo average increased to 2.5866% from

Thursday's 2.5427%. 

     YUAN: The yuan closed at 7.0825 against the dollar from Thursday's close of

7.0875. The PBOC set the dollar-yuan central parity rate higher at 7.0572,

compared with 7.0490 on Thursday.

     BONDS: The yield on 10-year China Government Bonds was last at 3.0675%, up

from the close of 3.0525% on Thursday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index rose 0.49% to 2,897.43. Hong Kong's

Hang Seng Index rose 0.50% to 26,179.33. 

     FROM THE PRESS: Foreign investors are optimistic about the huge potential

of the Chinese market and have been increasing their levels of investment,

Xinhua News Agency said in a commentary. In the face of escalating tariff

threats from the U.S., some foreign enterprises at the lower end of the

industrial chain are shifting some of their production out of China, which is a

reasonable move in search of lower costs, Xinhua said. China has increasingly

encouraged high-quality foreign investment to create a more diversified

international trade and investment market, the Xinhua commentary said.

     The National Development and Reform Commission has accelerated approvals

for the issuance of corporate bonds, according to a report in Securities Daily.

Citing analysts, the report said the accelerated issuance would convey the

government's intention to stabilize market demand and the rate of economic

growth. Companies would be more willing to issue bonds as the looser monetary

policy had lowered issuance costs. So far this year 97 companies have been

approved to issue more than CNY440 billion of bonds.

     China is likely to roll out more policies to ensure the full implementation

of tax and fee cuts and facilitate the financing of private companies, Economic

Information Daily reported. Regulations on optimizing the business environment

are also expected to be introduced in the near term, the newspaper said.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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