MNI China Daily Summary: Thursday, August 16

     TOP NEWS: "The target of the PBOC's forex control is not to choose a level

for the market, but to prevent excess volatility of the yuan exchange rate

against the greenback," Guan Tao, former Director General of Balance of Payments

at the State Administration of Foreign Exchange (SAFE) said in an interview with

MNI.

     TOP NEWS: Wang Shouwen, China's Vice Minister of Commerce, will lead a

delegation to the U.S. for trade talks in late August, according to a statement

on MOFCOM's website. "Despite plans to negotiate, I personally think the chance

of a big success or breakthrough is low," Mei Xinyu, a researcher at the Chinese

Academy of International Trade and Economic Cooperation under China's Ministry

of Commerce, told MNI. "There will not be much sincerity in Washington's efforts

to reach a deal. That will come only after it feels obvious pain," Mei said.

     POLICY: China has "significant leeway" to counter any negative impacts from

the China-U.S. trade war, while making sure its economic targets are met this

year, Cong Liang, secretary-general of the National Development and Reform

Commission, said at a press conference.

     LIQUIDITY: The PBOC injected a net CNY40 billion via reverse repos on

Thursday, resuming open market operations after skipping them for 19 consecutive

days. CFETS-ICAP's money-market sentiment index closed at 36 on Wednesday, down

from 39 on Tuesday.

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

2.5774% on Thursday from 2.5634% on Wednesday; the overnight average increased

to 2.5051% from 2.3308% on Wednesday: Wind Information.

     YUAN: The yuan weakened to 6.9150 against the U.S. dollar on Thursday from

yesterday's 6.9049 closing, following today's weaker fixing. The PBOC set the

yuan central parity rate at 6.8946, weaker than Wednesday's 6.8856, marking the

lowest since May 12, 2017. The dollar remains on the back foot following the

news that a Chinese delegation is set to travel to the U.S. to discuss trade

relations, with USDCNH trading near its daily low, currently at 6.8998.

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

3.6200%, up from the previous close of 3.5850%, according to Wind Information.

     STOCKS: Shares in Shanghai continued to slip but pared some losses seen

earlier today after positive U.S.-China developments in terms of new trade

talks. The Shanghai Composite Index closed 0.66% lower at 2,705.19, weighed down

by the agriculture sector. Hong Kong's Hang Seng Index decreased by 0.97% to

27,057.99.

     FROM THE PRESS: An increase in the share of bad loans, caused by stricter

standards and deleveraging, does not indicate a deterioration in asset quality,

said Zhao Changwen, director general of the State Council's Development Research

Center, according to the Financial News, a publication under the PBOC. It is,

however, necessary to be cautious about the surge in individual housing loans

and the associated potential risks, Zhao said, according to the newspaper. Risks

in the banking sector are still controllable, but house price rises must be

firmly curbed, the macro deleveraging rate must remain stable and the

transformation and upgrading of the real economy must see substantial results,

Zhao added, according to the newspaper.

     The injection of CNY383 billion via medium-term lending facility (MLF)

loans yesterday keeps liquidity at a sufficient level, but an extremely loose

money supply scenario will likely not reoccur as the rate of MLF loans is higher

than the money market rate, said Li Qilin, chief macro analyst of Lianxun

Securities, according to Shanghai Securities News. The MLF injection aims to

help relieve pressure on banks from the upcoming large issuances of special

government bonds, Li added, according to the newspaper. Expectations for

targeted required reserve ratio cuts by the end of the year have been lowered,

as China has vowed to implement more proactive fiscal policies, the newspaper

said, citing analysts including Li.

     China should maintain a consistent and stable monetary policy and a more

proactive fiscal policy to achieve its goal of loose credit, China Securities

Journal said in a commentary. Banks could appropriately loosen the constraints

on equity release and lending, and further innovate in terms of capital

instruments to lift their capital levels, the newspaper said. However, the

authorities should control the pace of the "loose credit" campaign to prevent

financial institutions from becoming overleveraged again, the newspaper said.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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

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