MNI China Daily Summary: Thursday, August 23

     TOP NEWS: Chinese government advisors have told MNI that this week's

low-level trade talks with the U.S. are unlikely to forestall the mutual

imposition of 25% tariffs on a further $16 billion of imports, scheduled to come

into effect on Thursday. "Just like an arrow on the bowstring, it's very hard to

stop the tariffs," said Wang Haifeng, who advises the National Development and

Reform Commission (NDRC), China's top economic planning body.

     LIQUIDITY: The PBOC skipped open market operations (OMO) on Thursday,

stating on its website that an increase in month-end fiscal spending would

offset the liquidity drain from local government bond issuance and reverse repo

maturities. No reverse repos matured today. Yesterday's OMO had been the first

since Aug 14. CFETS-ICAP's money-market sentiment index closed at 31 on

Wednesday, down from 36 on Tuesday.

     YUAN: The yuan eased to 6.8697 against the U.S. dollar from Wednesday's

closing of 6.8460. The PBOC set the central parity rate at 6.8367 on Thursday,

versus Wednesday's 6.8271, the first weaker fixing in five trading days.

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

2.6136% from 2.6459% on Wednesday; the overnight average decreased to 2.4239%

from 2.5142% yesterday: Wind Information. BONDS: The yield on the benchmark

10-year China Government Bond was last at 3.6025%, according to Wind

Information.

     STOCKS: The Shanghai Composite Index closed up 0.37% at 2,724.63. Hong

Kong's Hang Seng Index declined by 0.43% to 27,806.66. 

     FROM THE PRESS: The yuan should not be allowed to depreciate significantly,

Securities Times said in a commentary, warning of potential capital outflows and

even systemic financial risks. China should learn from Turkey's travails and

avoid any temptation to seek to use a weaker currency to boost exports, the

newspaper opinion piece argued. 

     The PBOC may increase its open market rate if the Fed raises its benchmark

interest rate in September, China Securities Journal reported, citing analysts

including Wen Bin, chief researcher at China Minsheng Bank. A Fed hike and a

stronger dollar would be a shock to emerging economies, the Journal reported.

China's monetary policy needs to balance the objective of stable growth with

risk controls, while ensuring credit flows to the real economy. Expanding

domestic demand is key, the Journal said, amid uncertainties caused by

deleveraging and structural reform. 

     Some local governments have been told to raise coupons on their bonds to

attract demand and boost issuance, Shanghai Securities News reported. Regulators

asked them to pay 40 BP more than coupons of China government bonds of the same

term, according to the newspaper. The move came after the Ministry of Finance

asked, in mid-August, for local governments to issue more special bonds to fund

infrastructure investment. Thus far, Guangdong, Jiangsu and Zhejiang provinces

have complied with the request to boost coupons, the report said. Financial

institutions are buying more local government debt, and yields are favourable,

it said.

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

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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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