MNI China Daily Summary: Monday, August 13

     TOP NEWS: Market focus has finally shifted away from the collapse in

Chinese assets, with the Turkish lira now moving squarely into focus. The 'great

fall of China' may be coming to an end, as the negative news regarding

U.S.-China trade relations are likely largely priced in and investors look to

target the EMs with weaker balance sheets.

     POLICY: China is steadfastly tackling local government debt problems, but

achieving results may take time and effort, said Hu Xiaolian, former deputy

governor of the People's Bank of China and now the chairwoman of the

Export-Import Bank Of China. 

     POLICY: China should ensure consistent policies in promoting the yuan's

internationalization, and should prevent trade disputes from weakening its

resolve and hurting long-term reform, said Zhou Xiaochuan, the former governor

of the PBOC. China may have to weigh losses and gains and be prepared to make

compromises, Zhou said.

     LIQUIDITY: The PBOC skipped open market operations today citing that a

relatively high level of liquidity can offset the impacts of issuance of

government bonds and tax payments. No reverse repos matured today. There will be

CNY336.5 billion maturing in medium-term lending facilities (MLF) on Wednesday.

CFETS-ICAP's money-market sentiment index closed at 36 on Friday, down from 38

on Thursday.

     MONEY MARKET RATES: Benchmark 7-day deposit repo average rose to 2.4448% on

Monday from 2.3076% on Friday; overnight average increased to 2.1033% from

1.8171% on Friday: Wind Information.

     YUAN: The yuan weakened to 6.8762 against the U.S. dollar on Monday from

last Friday's 6.8574 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.8629, weaker than Thursday's 6.8395. The drop is

the biggest daily decline in the last 10 trading days. Despite renewed yuan

weakness, it has actually been among the best performing EM currencies in recent

trading as investors have shifted their focus to EMs with weaker external

balance sheets, which has seen Asian FX on the whole outperform. The yuan's real

effective exchange rate now trades at a 3-week high.

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

3.5800%, up from the previous close of 3.5450%, according to Wind Information.

     STOCKS: Shares in Shanghai fell more than 1% in early trading, weighted

down by Turkish currency crisis. Property stocks pared back some of the losses

after banks denied a mortgage-rates cut. Shanghai Composite Index closed 0.34%

lower at 2,785.87. Hong Kong's Hang Seng Index fell 1.50% to 27,940.85.

     FROM THE PRESS: To counter the procyclical fluctuations in the forex

market, China may take counter-cyclical measures to keep the yuan exchange rate

within appropriate levels, Shanghai Securities News reported, citing a report by

the PBOC. China, persisting in its liberalization of the yuan, will not use

competitive depreciation as a tool to offset the impact of external trade

disputes, the newspaper said. China will maintain a neutral and prudent monetary

policy and firmly prohibit strong stimulus measures in the next stage, the

newspaper added. The PBOC will use multiple monetary policy tools efficiently to

achieve a balance between stable growth, structural reform and risk prevention,

the central bank said, according to the newspaper.

     China must contain the rise of housing prices with tight regulatory

measures, Economic Information Daily said in a commentary, after two major

state-owned banks denied lowering the mortgage rate for first-time home buyers

in Shanghai last Friday. Continuous rises in housing prices and an expansion in

real estate industry will only increase bubbles and restrict China's potential

for development, the newspaper said. Local governments must reduce their high

reliance on real estate to simulate the local economy, the newspaper said. China

should soon establish a long-term mechanism to curb people's expectations for

soaring housing prices, the newspaper added.

     The U.S. is aiming for an "economic war" rather than trade war to restrict

China's right to technological development, as the USD50 billion tariffs mainly

target industries related to the development-focused "China 2025" campaign, 21st

Century Business Herald said in a commentary. As long as the U.S. respects

China's key interest, which is its rights to development, the two sides can

achieve mutual benefits through negotiations, the newspaper said. China has

adjusted the pace and strength of deleveraging amid escalating trade tensions,

but will not pause its deleveraging campaign, the newspaper added. The size of

China's stock market will not shake China's determination or capability to

counter the trade war, the newspaper added.

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

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

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