MNI China Daily Summary: Monday, September 10

     BEIJING (MNI) - TOP NEWS: China's monetary policy should remain "prudent

and neutral, and be preset and finetuned appropriately" to accommodate new

changes in financial conditions and the external environment, according to a

statement on the State Council's website, summarizing a meeting by the Financial

Stability and Development Committee (FSDC) chaired by Vice Premier Liu He. The

committee, known as China's super financial regulator, called for closer

coordination among ministries, especially those in charge of banking, fiscal

finance, development and reform, to further promote economic growth. Authorities

shall also diffuse financial risks and prevent major events from stabilizing

stock, bond and forex markets, according to the statement.

     TOP NEWS: China's consumer price index (CPI) and producer price index (PPI)

last month were both higher than the medians of economists' forecasts,

suggesting increased inflationary pressure, data by the National Bureau of

Statistics (NBS) showed. CPI was 2.3% y/y in August, the highest since February

when increased spending during the Chinese New Year holiday spurred a 2.9% gain.

The accelerated y/y CPI was buoyed by gains in both food and non-food prices.

Inflation increased 0.7% over July, also fastest month-to-month gain since 1.2%

between February and January. 

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMO) on Monday, citing "reasonable and ample" liquidity within the banks. There

is no change in liquidity today with the absence of maturing reverse repos,

according to Wind Information. No reverse repos are expected to mature this

week, according to Wind Information. CFETS-ICAP money-market sentiment index

closed at 33 on Friday, down from 48 on Thursday.

     YUAN: The yuan fell to 6.8597 against the dollar from Friday's closing of

6.8379. Earlier today, the PBOC set the yuan central parity rate at 6.8389,

weaker than last Friday's 6.8212.

     DATA: China's PPI rose 4.1% y/y in August, higher than the 4.0% median of

an MNI forecast, while down from 4.6% in July, NBS data show. PPI climbed 0.4%

in August from July, faster than 0.1% gain from June to July. It was buoyed by

gains in prices of processing ferrous metal and fossil fuels, as well as costs

of chemical raw materials and products, according to the NBS.

     DATA: Exports rose in Aug by 9.8% y/y to USD217.43 billion, below 10.0% y/y

forecast by MNI survey and slower than the 12.2% y/y in July. Exports for the

first eight months increased by 12.2% y/y to USD1.60 trillion. Imports increased

by 20.0% y/y to USD189.52 billion, slower than last month's 27.3% surge and

above market's survey of 19.3%. Trade surplus narrowed to USD27.91 billion, the

smallest for an August month in six years. Year-to-date surplus was the smallest

in five years at USD193.66 billion.

     DATA: FX reserves as of Aug 31 fell by $8.23 billion from a month ago to

$3.11 trillion, compared with the $5.82 billion monthly increase on July 31. The

lower valuation was due to volatility of the dollar index and uncertainty caused

by global trade conflicts and geopolitics, according to the State Administration

of Foreign Exchange (SAFE), which published the data. The supply and demand of

the FX market were stable and cross-border capital flows remained balanced, SAFE

said. FX reserves "benefited from good economic momentum, stable forex market

and improved flexibility of the yuan exchange rate," the regulator said.

     MONEY MARKET RATES: The benchmark seven-day deposit repo average decreased

to 2.6724% on Monday from 2.6742% Friday, while overnight average dropped to

2.5647% from 2.5734%: Wind Information.

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

3.6600%, up from Friday's close of 3.6400, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 1.21% lower at 2,669.48. Hong

Kong's Hang Seng Index declined 1.6% to finish trading at 26,542.96.

     FROM THE PRESS: Chinese local governments may issue more than CNY500

billion special bonds in September to boost infrastructure investment, Economic

Information Daily reported. Some CNY428 billion special bonds were issued in

August, according to the newspaper. The central government issued documents to

encourage such issuances in August, the newspaper said. The money raised have

been used in municipal projects, transportation and government-subsidized

housing, the newspaper said, citing analysts including researchers at China

International Futures Corp.

     A GPD growth of 6% and a floating exchange rate may allow China to

withstand external shocks, Zhou Xiaochuan, former governor of the PBOC, told

CNBC in an interview. External shocks may slow China's growth by 0.5 percentage

point, Zhou said. China should grow exports to non-U.S. countries as soon as

possible to reduce its reliance, Zhou said according to CNBC.

     Chinese companies' acquisitions in the U.S. slowed as the trade war waged

on, the 21st Century Business Herald reported. Trade conflicts and national

security concerns of the U.S. government delayed approvals of M&A cases, the

newspaper said. Some U.S. companies cancelled M&A discussions with China as the

U.S. government tightened regulations, the newspaper said, citing unidentified

bankers and lawyers.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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

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