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     TOPS NEWS: Forestalling a systemic crisis in the financial sector is now a
"forever theme" for the government, People's Bank of China governor Zhou
Xiaochuan said in an article on the central bank's website that was published as
an authoritative analysis of President Xi Jinping's report to the 19th Communist
Party Congress last month. China should take the initiative to prevent systemic
financial risks, which means speeding up reforms, Zhou said in the article,
which was published over the weekend. Also in need of improvement are trade
investment rules, the internationalization of the yuan and foreign-exchange
controls, Zhou said. In addition, China needs to lower entry restrictions on
foreign financial institutions, and align its regulatory standards with
international ones, he said.
     TOP NEWS: The main aim of U.S. President Donald Trump's Asia-Pacific trip
is to strengthen security ties with allies in the region at China's expense in
exchange for economic concessions, China's nationalistic Global Times newspaper
charged in an editorial published Monday. In offering "economic boons" to
countries including Japan and South Korea, Trump is hoping that the U.S. allies
can eliminate the threat posed by North Korea, the editorial said.
     TOP NEWS: U.S. President Donald Trump said during a press conference with
Japanese Prime Minister Shinzo Abe in Tokyo on Monday that he would be looking
for "reciprocal" trade concessions from China during his visit to Beijing
starting on Wednesday. Trump, who was in Tokyo for the first leg of his
five-country Asia-Pacific tour, said in reply to a question on China's trade
surplus that the United States would take "very strong action" that would
"happen very soon" against countries that didn't agree on trade deals with the
United States, without specifying what those actions would be or when they would
take place. He also implied that negotiations with China could be contentious,
despite his friendship with Chinese President Xi Jinping. "I like him a lot. He
likes me a lot. I consider him a friend," Trump said of Xi. "But I represent the
U.S. and he represents China," he said, adding that China's trade surplus with
the United States "has to come down."
     POLICY: Shadow banking activity in China stopped rising in the first six
months of this year, the first time since 2012 that the expansion had been
slower than nominal GDP growth, Moody's credit ratings agency said Monday.
Assets handled by shadow banking institutions, or largely off-the-books
activity, fell to 82.6% of GDP as of the end of June, compared with the 86.5%
peak in the same period last year. The decline reflects effective regulation by
the government, which caused a drop in banks' issuance of higher-risk
instruments such as wealth management products, and nonbank financial
institutions' issuance of asset management plans, Moody's said. Further
regulatory tightening will accelerate the slowdown, the agency predicted.
However, the share of core shadow banking activity -- entrusted loans, trust
loans and undiscounted bankers' acceptances -- has increased compared with
broader banking activity, Moody's said. Bank lending also remains robust, with
credit to households increasing rapidly, Moody's noted.
     RATES: Money market rates were mixed on Monday after the PBOC's lack of
open-market operations resulted in a drain of CNY160 billion. The seven-day repo
average was last at 2.7466%, up from Friday's average of 2.7387%. The overnight
repo average was at 2.4653% compared with Friday's 2.5084%.
     YUAN: The yuan fell against the U.S. dollar Monday after the People's Bank
of China set a weaker daily fixing. The yuan was last at 6.6392 against the U.S.
unit, dropping 0.03% compared with the official closing price of 6.6295 on
Friday. The People's Bank of China set the yuan central parity rate against the
U.S. dollar at 6.6247 on Monday, modestly weaker than Friday's 6.6072.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.8700%, down from the previous close of 3.8800%, according to Wind, a financial
data provider.
     STOCKS: Stocks rose, led higher by the ferrous metal mining sector. The
benchmark Shanghai Composite Index closed up 0.49% at 3,388.17. Hong Kong's Hang
Seng Index was 0.26% lower at 28,529.13.
     FROM THE PRESS: The head of the financial research institute at the
People's Bank of China has said that all businesses involved in financial
technology need to have a license, the Financial News, a journal published by
the PBOC, reported Monday. Sun Guo Feng, speaking Saturday, said that licensing
would play a very important part in supervision of financial technology.
(Financial News)
     China will create a legal digital currency to improve its "digital
economy," a People's Bank of China official said Saturday, the Financial News,
in journal published by the PBOC, reported Monday. Yao Qian, head of the central
bank's digital currency research center, cited President Xi Jinping's 19th
Communist Party Congress report -- which emphasized deeper integration of the
real economy with the internet, big data and artificial intelligence -- as
justifying the development of a digital currency. China will create an
implementation plan that is forward-looking but flexible to strengthen the
integration of the digital currency while minimizing risks, Yao said. (Financial
News)
     Allowing the market to perform its fundamental function, defining the
boundary between the roles of market forces and the government, and energizing
micro-level businesses and entities will be crucial to China's economic reform,
the Economic Information Daily said in a front-page commentary on Monday. The
newspaper stressed the importance of coordination of these three aspects,
mentioned by President Xi Jinping in his keynote speech at the 19th Communist
Party Congress last month. A key question for China's economic development is
how to scientifically specify the boundary between allowing market forces to
operate and the need for government intervention, because at times the
government has gone too far and restricted the development of businesses, the
newspaper argued. The government needs to moderate its control over the economy,
using a light touch at the micro-economic level and instead focusing on
supervising overall market order. (Economic Information Daily)
     Although risks in the banking system have been reduced due to a drop in the
bad loan ratio in the first three quarters of this year, risks to the sector's
liquidity conditions remain a danger, the official People's Daily reported
Monday. The newspaper cited Dong Ximiao, researcher at the Chongyang Institute
for Financial Studies at Renmin University, as saying that banks' liabilities
mainly derive from short-term debt, such as deposits and bills with maturities
of less than a year. That makes it difficult for banks to support their
longer-term assets, like loans, Dong said. The next step for banks is to
optimize assets and liabilities, Dong said. Banks also need to be cautious about
credit risks, Dong argued, strengthening controls to keep profits from eroding.
(People's Daily)
--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$$$]