MNI China Daily Summary: Friday, September 4

EXCLUSIVE: The yuan may be approaching its high point for this year, sources familiar with People's Bank of China (PBOC) exchange rate policy told MNI, noting that the currency's strength at a time of broad dollar weakness may indicate an official desire to boost local capital markets by allowing inflows but that the exchange rate was beginning to pressure exporters.

LIQUIDITY: The PBOC injected CNY100 billion via 7-day reverse repos with the rate unchanged at 2.2%. This offset the maturity of CNY100 billion in reverse repos, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 2.2057% from Thursday's close of 2.1781%, Wind Information showed. The overnight repo average increased to 2.0368% from the previous 1.7472%.

YUAN: The currency weakened to 6.8393 against the dollar from 6.8355 on Thursday. The PBOC set the dollar-yuan central parity rate higher for the first time at 6.8359 after eight consecutive days of strengthening, compared with Thursday's 6.8319.

BONDS: The yield on 10-year China Government Bond was last at 3.1200%, up from the close of 3.1075% on Thursday, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.87% to 3,355.37, while the CSI300 index fell 0.97% to 4,770.22. Hang Seng Index tumbled 1.25% to 24,695.45.

FROM THE PRESS: Chinese banks may be facing a new norm of tight liquidity as the PBOC reins back monetary easing given the economic recovery is on track, the Shanghai Securities News reported citing Liao Zhiming, the chief banking analyst with TF securities. The 3-month interbank deposit certificate increased to 2.7% in August, the highest this year, indicating tight liquidity, the newspaper reported citing a source at a commercial bank. Commercial banks in China sold about CNY1.1 trillion in interbank deposit certificates in July and August, more than in all of Q2 , the News reported with data from Wind Information.

China's steel demand is forecast to rise from September as cooler weather and repairs following summer flooding boost construction activities, while improved global demand may lift exports, Xinhua News Agency reported citing the China Iron and Steel Association. Output of iron, crude steel and steel materials in the first seven months rose 3.2%, 2.8% and 3.7% respectively, driven by the manufacturing recovery, Xinhua said. Steel producers reported positive y/y profit growth in June and July, the agency reported.

China and the EU should cooperate on issues such as climate change, the reform of international organizations, economy and nuclear disarmament, according to a commentary on government portal China.com.cn. Zhang Bei, a researcher with the China Institute of International Studies, wrote that China's understanding and expectations of China-EU relations have always been for mutual cooperation and not zero-sum games, as demonstrated by State Councilor Wang Yi's visit to Europe this week.