MNI China Daily Summary: Friday, September 21

     TOP NEWS: China's trade war with the U.S. is likely to disrupt the pace of

domestic economic reform, an advisor to the authorities told MNI in an

interview. "Over the past year or more, there have been signals that

policymakers may lift their obsession with growth to cope with issues

accumulated during the process of rapid development," Zhu Ning, professor at the

People's Bank of China School of Finance(PBCSF). "But I am worried the situation

may be reversed under the cloud of the trade war," Zhu said, noting many

reforming policies have been slowed, suspended or even cancelled in recent

months.

     TOP NEWS: China is unlikely to use its currency or its stockpile of U.S.

financial assets as weapons in retaliation against U.S. tariffs, but it may

restrict exports of supply chain components, an advisor to the authorities told

MNI in an interview. There is little room for China to use its currency as a

weapon or to dump U.S Treasuries, Zhu Ning, professor at the People's Bank of

China School of Finance (PBCSF), said. However, he did predict the yuan will

remain weak in the long run.

     POLICY: China is studying targeted measures to help Chinese and foreign

companies operating in the country to offset the most recent U.S. tariff action,

a Ministry of Commerce spokesman said. "We are assessing the impacts of the U.S.

tariffs on $200 billion Chinese exports to the U.S.," Gao Feng told a weekly

press conference, mentioning measures including simplified customs procedures

and lower related fees. China is also drafting rules to facilitate foreign

investment in listed companies, he said.

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

on Friday, resulting in net drain of CNY110 billion in liquidity as that amount

of reverse repos matured today, according to a statement on the PBOC website.

The PBOC said month-end fiscal spending and government deposit into the banking

system would offset liquidity drain due to local government bond issuance and

reverse repo maturities. The PBOC so far this week has injected CNY6 billion via

OMO and CNY265 billion in MLF. CFETS-ICAP's money-market sentiment index closed

at 41 on Thursday, down from 49 on Wednesday.

     YUAN: The yuan strengthened to 6.8345 against the USD from Thursday's

closing of 6.8528. Earlier today, the PBOC set the yuan central parity rate

stronger for the second trading day at 6.8357, compared with Thursday's 6.8530.

The PBOC has set the fixing stronger for two days out of five this week.

     MONEY MARKET RATES: The benchmark seven-day deposit repo average decreased

to 2.6429% on Friday from 2.6469% Thursday, while the overnight average dropped

to 2.5134% from 2.5152%: Wind Information.

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

3.6850%, down from Thursday's close of 3.6950%, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 2.5% higher at 2,797.48. Hong

Kong's Hang Seng Index rose 1.68% to 27,940.24.

     FROM THE PRESS: China should establish systems of indexes, policies,

standards, statistical records and performance evaluations of officials to

support high-quality growth, Xinhua reported, citing officials at a meeting with

President Xi Jinping. Financial regulators need to improve supervision, and

ensure that rule-setting doesn't clash with that of other jurisdictions,

officials stressed. China needs to better coordinate regional development, and

to deepen reforms and innovation in free-trade pilot zones, officials at the

meeting concluded.

     Strong economic fundamentals, the emergence of new growth engines and

structural industrial upgrades should support the yuan, Securities Daily

newspaper said. China's international balance of payments is reasonably

balanced, while foreign reserves are abundant and stable. The PBOC will also

continue to take measures to maintain yuan stability, the newspaper said.

     More than CNY600 billion in special bonds to support infrastructure

investment were issued from August to mid-September, including more than CNY200

billion in September, Economic Information Daily reported. The issuance should

support investment worth more than a trillion yuan, the newspaper said. Lenders

including Bank of China and China Construction Bank will also provide loans to

back the infrastructure spending, the newspaper said, citing unidentified

industry insiders.

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

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

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