MNI China Daily Summary: Friday, September 28

     TOP NEWS: Chinese authorities should focus their energies on better honing

their deleveraging drive and boosting credit to the real economy, rather than on

the trade war with the U.S., a former advisor to the People's Bank of China

(PBOC) told MNI. "The impact of the trade war on China's economy is limited,"

said Li Daokui, also a member of the Economy Committee under the National

Committee of the Chinese People's Political Consultative Conference (CPPCC).

"What's most needed is to adjust our financial policies, which are not

implemented in a well-targeted way." Current financial policies, especially

those concerning deleveraging, are "too simple and too blunt," Li said.

     POLICY: A Ministry of Commerce spokesperson said Washington should not

underestimate Beijing's determination to stand up for itself in the trade

dispute. "Bullying and extreme pressure methods will not scare China or make

China's economy collapse," Gao Feng said.

     LIQUIDITY: The PBOC skipped open market operations on Friday, resulting in

a net liquidity drain of CNY40 billion, as the same amount of reverse repos

matured, according to Wind Information. The PBOC said banking system liquidity

is at a relatively high level due to quarter-end fiscal expenditure. It was the

third straight trading day the PBOC has skipped OMO and the sixth consecutive

trading day it has drained net liquidity. CFETS-ICAP's money-market sentiment

index closed at 41 on Thursday, up from 39 on Wednesday.

     MONEY MARKET RATES: The 7-day repo average dropped to 2.6931% from 2.6957%

Thursday. The overnight repo average decreased to 2.4125% from Thursday's

2.4287%.

     YUAN: The yuan depreciated to 6.8851 against the U.S. dollar from

Thursday's closing of 6.8770. The PBOC set the yuan central parity rate weaker

for a fourth straight trading day at 6.8792 on Friday, compared with 6.8642 on

Thursday.

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

3.6350%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 1.06% higher at

2821.35. Hong Kong's Hang Seng Index rose 0.08% to 27,736.65.

     FROM THE PRESS: It is "wrong and one-sided" to argue that state-owned

enterprises (SOEs) should be abandoned or scaled down, Chinese President Xi

Jinping said on Thursday, according to news agency Xinhua. China should continue

to strengthen and expand its SOEs, Xi stressed during a visit to Liaoning

Province. The Communist Party should continue to manage SOEs, which should

continue to establish modern working practices, the premier stated, according to

Xinhua.

     The PBOC is likely to implement targeted RRR cuts to support technological

development and entrepreneurship, the Securities Daily reported. The policy

could be announced soon after the week-long National Day Holiday. Authorities

are endeavouring to stabilise domestic demand and improve the transmission of

monetary policy to the real economy, said Zhou Chenghua, a fixed income

researcher at Citic Securities.

     Rapid consumption growth will continue to support China's economy, even as

growth slows, said Niu Li, deputy director of the economic forecasting

department at the State Information Centre, according to the official People's

Daily. Stable investment growth, buoyed by supportive policies, and efforts to

diversify export markets also bode well for economic resilience, Niu added,

according to the newspaper. Despite domestic and external challenges including

trade frictions with the U.S., these factors will help China to achieve this

year's growth target, said Xu Wei, researcher at the macro-economy research

department of the Development Research Centre of the State Council.

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

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

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