MNI China Daily Summary: Friday, August 31

     TOP NEWS: China's official Purchasing Managers Index (PMI) rose in August

to 51.3 from 51.2 in July, beating MNI's median forecast of 51.0. The

manufacturing gauge has remained above the 50-mark, which separates contraction

from expansion, for two years. The improvement was driven by stronger

production, with the respective index picking up to 53.3 from 53.0 in July,

reflecting a steady expansion of output, Zhao Qinghe, senior statistician at the

National Bureau of Statistics, said in a statement. The new orders index dropped

by 0.1-point from July to 52.2, the lowest in six months.

     POLICY: Beijing will provide support for businesses to offset the negative

impacts of the trade dispute with the U.S and boost their long-term development,

the Ministry of Commerce said. "We are confident of being able to defend stable

development of trade," Gao Feng, ministry spokesman, said at a weekly briefing.

He called talks between China and the U.S. in Washington last week

"constructive."

     LIQUIDITY: The People's Bank of China (PBOC) skipped its open market

operations on Friday, stating on its website that month-end fiscal expenses are

enough to maintain liquidity in the banking system at a relatively high level.

The PBOC's inaction resulted in no change in liquidity, as no reverse repos

matured today, according to Wind Information. Today is the eighth consecutive

day the PBOC has skipped OMO. In total, CNY170 billion was drained this week.

CFETS-ICAP's money-market sentiment index closed at 31 on Thursday, down from 34

on Wednesday.

     YUAN: The yuan strengthened to 6.8309 against the U.S. dollar from

Thursday's closing of 6.8360. Earlier today, the PBOC set the yuan central

parity rate at 6.8246, weaker than Thursday's 6.8113. The central bank has set

the fixing weaker on three trading days out of five this week.

     YUAN: After a brief rally erased half of today's USDCNH losses, the pair

dropped back towards intraday lows, trading at 6.8440 as of 13:18 Beijing time.

A weekly and monthly close below 6.85 would keep alive hopes of a bearish

reversal pattern, which is supported by the continued inversion of the implied

volatility curve. EURCNH also dipped below 8.0, after closing above this level

yesterday for the first time since 2014. Yuan bulls need to prevent a monthly

close above this level to help avert further gains in the pair.

     MONEY MARKET RATES: The benchmark 7-day deposit repo average increased to

2.6172% from 2.6115% on Thursday; the overnight average climbed to 2.2702% from

2.2454%: Wind Information.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.5800%, down from the previous close of 3.5850%, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 0.46% lower at 2,725.25. Hong

Kong's Hang Seng Index declined 1.03% to close at 27,873.96.

     FROM THE PRESS: Most big Chinese banks vowed to increase lending to support

local infrastructure investment and micro-businesses in their half-year result

releases, the China Securities Journal reported. The Agricultural Bank of China

increased support for important infrastructure construction projects and the

high-tech sector in H1, while the Industrial Bank reported that it provided

additional funds for areas including green finance, advanced manufacturing and

consumption, the newspaper said. Some banks stressed that they won't simply stop

lending to struggling companies, despite China's deleveraging drive. The

Industrial and Commercial Bank of China said it will help out companies which

focus on its core business areas and have a favourable outlook, the newspaper

said. In H1, net profits of 26 A-share listed Chinese banks rose 6.49% y/y to

CNY826.67 billion, according to the newspaper.

     China will accelerate the opening up of its financial sector, with several

measures taking effect this year, the Economic Information Daily reported. The

Shanghai-London stock connect programme is expected to launch in the coming

months, while shareholding restrictions on foreign investment in banks, futures

and life insurance companies will be lifted by year-end, said the Daily. Since

April, Chinese authorities have implemented around 10 policies to expand

openness and market access for foreign investors to banking, insurance,

securities, investment funds and futures sectors, the newspaper said.

     Chinese Vice Premier Liu He said China and Japan should defend free trade

rules and the multilateral trade system, according to the official Xinhua news

agency. Meeting with Japanese Deputy Prime Minister and Minister of Finance Taro

Aso on Thursday, Liu said unilateralism and trade protectionism harm global

development and society's interests, and China and Japan should further improve

bilateral relations. Protectionism doesn't benefit any countries and all trade

actions should follow WTO rules, Xinhua cited Aso as saying.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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