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     TOPS NEWS: The Ministry of Commerce announced the government will close all
North Korean firms operating in China within 120 days of Sept. 11, the day the
United Nations Security Council adopted the latest round of sanctions against
Pyongyang, the South China Morning Post reported Thursday. In the notice, the
ministry said all joint ventures with North Korean companies in China as well as
joint ventures set up overseas by the two countries or the citizens of the two
countries would be closed, but companies not within the sanctions parameters or
those approved by the U.N. Security Council would be exempt, according to the
newspaper.
     TOP NEWS: The seemingly flexible stance and tolerance of the People's Bank
of China regarding the yuan exchange rate has been challenged over the past
month as the yuan has fluctuated in a wider trading band, forcing the central
bank to re-evaluate how far from shore it will allow the yuan to float before
throwing in a lifesaver. The unprecedented volatility of the yuan in the past
month -- from a big surge to a sharp slump -- could indicate that the PBOC has
an increased tolerance for a wider trading band of the currency. More important,
the central bank seems to have unveiled to the market its new dynamic
policy-making process for the yuan exchange rate -- in other words, the PBOC is
no longer afraid to let the yuan float on its own, at least for short periods.
     POLICY: The Ministry of Commerce said Friday that China does not force
foreign investors to transfer technology to form joint ventures in China. The
ministry made the comment at a press conference announcing the release of its
"Report on the Latest Development in Intellectual Property Rights Protection and
the Business Environment in China," compiled by the Office of the National
Leading Group on the Fight Against IPR Infringement and Counterfeiting. China
would implement strict intellectual property rights protection, the ministry
said. China opposes "measures by individual countries to adopt unilateralism and
protectionism," and will continue to work to build an equal, open and
transparent business environment, and to protect the international multilateral
trading system, officials from several government bodies stressed at the press
conference.
     POLICY: This month, China's so-called "Black Metal Complex" -- markets for
steel, iron ore, coal and any businesses related to the production and
consumption of ferrous metals -- agonized over a major announcement from the
increasingly powerful Ministry of Environmental Protection. Dubbed "26+2," the
latest order gave tough-worded warnings to officials in Beijing, Tianjin, and 26
other cities in the surrounding provinces: curb heavy-polluting industries and
keep the air clean, or they face severe discipline. In the winter heating months
ahead, every city's pollution indicators will be constantly monitored.
     DATA: China's current account surplus surged to $50.9 billion (CNY348.8
billion) in the second quarter from $18.4 billion in the first quarter, the
State Administration of Foreign Exchange (SAFE) announced Thursday. SAFE said
the capital and financial accounts, which include net error and omission
numbers, saw a deficit of $0.4 billion (CNY3.1 billion) in the second quarter,
significantly shrinking from the $39.3 billion surplus during the January to
March period. For the first half of this year, the current account surplus was
$69.3 billion (CNY475.4 billion) while the capital and financial account surplus
was $38.9 billion (CNY267.6 billion), SAFE said.
     RATES: Money market rates were mixed on Friday after the PBOC drained a net
CNY160 billion via open-market operations. The seven-day repo average was last
at 2.9794%, up from Thursday's average of 2.9673%. The overnight repo average
was at 2.7722%, compared with Thursday's 2.9320%.
     YUAN: The yuan strengthened against the U.S. dollar Friday after the
People's Bank of China set a weaker daily fixing. The yuan was last at 6.6666
against the U.S. unit, rising 0.05% compared with the official closing price of
6.6699 on Thursday. The People's Bank of China set the yuan central parity rate
against the U.S. dollar at 6.6369 on Friday, modestly weaker than Thursday's
6.6285.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.5879%, up from the previous close of 3.5635%, according to Wind, a financial
data provider.
     STOCKS: Stocks rose, led higher by property agency stocks and the telecoms
service sector. The benchmark Shanghai Composite Index closed up 0.28% at
3,348.94. Hong Kong's Hang Seng Index was 0.27% higher at 27,496.11.
     FROM THE PRESS: The Chinese bond market is entering a "slow bull" period,
the Financial News, a newspaper managed by the People's Bank of China, said
Friday. As the State Council meeting announced Wednesday, targeted cuts in
banks' required reserve ratios would boost financial institutions' support for
micro-enterprises, and there is relatively high chance the PBOC will implement
this policy within a month, the newspaper said. The targeted reserve ratio cut
could inject new energy into the money and bond markets. But the report noted
that the signaling of a coming targeted RRR cut does not mean a change in the
direction of China's prudent and neutral monetary policy or the beginning of a
"loose period" for liquidity. As the third quarter is ending, many financial
institutions are positive about the bond market outlook in the fourth quarter,
so the State Council's announcement should further strengthens the market's
optimism, the report said. (Financial News)
     The yuan exchange rate will continue a "two-way" fluctuation in the future,
the China Securities Journal reported Friday. The weakening of the yuan in the
last several weeks has been due mainly to the rebound of the dollar index, the
People's Bank of China's new foreign-exchange policy, and an increase in Chinese
companies' need to purchase foreign currencies, the report said. The yuan
exchange rate against the U.S. dollar will be driven by the two countries'
economic fundamentals, analysts were cited as saying. Given yuan depreciation
expectations have weakened, the Chinese currency could remain relatively strong
for some time, with its room to weaken limited, according to the newspaper.
(China Securities Journal)
     The Ministry of Commerce confirmed Thursday that it is compiling a
"blacklist" of rules to prevent irrational overseas investment by Chinese
companies, listing punishments for breaking the rules. The ministry is working
with related government bodies on the scheme, and China is "determined" to stop
irrational outbound investment and strengthen examination of the authenticity of
companies' outbound investments, according to ministry spokesman Gao Feng.
--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]