MNI China Daily Summary: Monday, August 20

     TOP NEWS: Risk positive headlines left traders with a more optimistic

outlook heading into the close. The most notable of which came in the form of

the WSJ noting that China & the U.S. are aiming for trade talks between Xi &

Trump in November. This will put increased focus on the lower-level trade talks

to be held between the two superpowers later this week, ahead of the scheduled

imposition of a 25% U.S. tariff rate on $16bn worth of imported Chinese goods.

Comments from White House economic advisor Kevin Hassett were also of note, as

he stated that "we are very close to trade deal with Mexico."

     YUAN: A currency index of the Chinese yuan resumed its weekly downward

trend, after increasing for two consecutive weeks, according to data released on

Monday by the People's Bank of China. The CFETS Weekly RMB Index, which measures

the yuan's strength on a trade-weighted basis relative to a basket of 24 of its

trading partners' currencies, declined by 0.14% on Friday from a week ago,

registering at 92.78. The index has now pared back all of the accumulated gains

it had made year-to-date, with Friday Aug 17's reading down 2.18% from 94.85 on

Dec 29, according to MNI's calculations.

     YUAN: The yuan strengthened to 6.8501 against the U.S. dollar on Monday

from Friday's 6.8815 closing, following today's stronger fixing. The PBOC set

the yuan central parity rate at 6.8718 on Monday, stronger than Friday's 6.8894.

This is the second consecutive trading day that the central bank has set the

fixing stronger after having previously set it weaker for six trading days in a

row.

     LIQUIDITY: The People's Bank of China injected CNY120 billion via its 7-day

reverse repos on Monday, resulting in a net injection of CNY120 billion as no

reverse repos matured today, according to Wind Information. The PBOC injected a

total of CNY513 billion via reverse repos and medium-term lending facilities

(MLF) loans last week. CFETS-ICAP's money-market sentiment index closed at 36 on

Friday, down from 42 on Thursday.

     POLICY: Moody's Investors Service says that shadow banking activity in

China (A1 stable) continues to contract, with shadow banking assets as a share

of GDP dropping to around 73% at the end of June 2018 from 79% at the end of

2017 and the peak of 87% at the end of 2016. In absolute terms, shadow banking

assets fell by RMB2.7 trillion in the first six months of 2018 to RMB62.9

trillion. "We expect the contraction in shadow banking assets to moderate in the

rest of 2018, as regulators are taking a more gradualist approach in response to

slower domestic credit growth and a more challenging external environment,"

Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia

Pacific, said.

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

2.6739% on Monday from 2.6480% on Friday; the overnight average increased to

2.6267% from 2.5782% on Friday: Wind Information.

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

3.6300%, unchanged from the previous close, according to Wind Information.

     STOCKS: Shares in Shanghai climbed on Monday. The Shanghai Composite Index

closed 1.11% higher at 2698.47. Hong Kong's Hang Seng Index rose by 1.4% to

27,595.69.

     FROM THE PRESS: Chinese regulators are increasing measures to enhance loan

support for micro-businesses, the Securities Times reported, citing people close

to the authorities. The banking regulator has called on some medium- to

large-sized banks to significantly lower interest rates for micro-businesses and

businesses owned by individuals, with some banks already having decreased rates

for these clients to around 4.77%, the newspaper said. Regulators are also

encouraging banks to allow micro-businesses to take out new loans to repay old

loans, according to the newspaper.

     Defaults of rental brokerage companies in the long-term property rental

market will be more dangerous than defaults of P2P lenders in China, said Hu

Jinghui, former deputy CEO of 5I5J Holdings Group Co, Ltd over the weekend,

according to WallStreetCN. In a press conference after Hu was fired due to his

public remarks warning of risks in the housing rental market, he noted that

national guidance for housing rental prices should be established to prevent

brokerage companies from inflating prices. If the problem is not solved,

defaults of brokerage companies will certainly happen in two years, Hu said,

according to the financial news provider.

     Local governments are expected to accelerate the issuance of their special

bonds to boost infrastructure investment, China Securities Journal reported. The

funds generated would be mainly spent on transportation, telecommunications,

education and healthcare. Around CNY1 trillion in special bonds need to be

issued by the end of this year, in line with the Ministry of Finance's plan to

issue a total of CNY1.35 trillion in special bonds in 2018, the newspaper said.

Risk controls would be strictly implemented to prevent new invisible debt, the

Journal noted.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]