MNI China Daily Summary: Thursday, August 29

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

(OMOs). This resulted in a net drain of CNY140 billion given the maturity of

CNY60 billion in reverse repos and CNY80 billion of Treasury's cash deposits at

commercial banks, according to Wind Information. The increased fiscal spending

by month-end offsets the maturity of Treasury's cash management and reverse

repos, keeping the liquidity in the banking system reasonable and ample, the

PBOC said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) fell to 2.6711% from 2.7145% on Wednesday, Wind Information

showed. The overnight repo average decreased to 2.4611% from 2.5976% yesterday.

     YUAN: The yuan strengthened to 7.1514 against the dollar from Wednesday's

close of 7.1635. The PBOC set the dollar-yuan central parity rate higher at

7.0858, compared with 7.0835 on Wednesday.

     BONDS: The yield on 10-year China Government Bond was last at 3.0275%, down

from the close of 3.0525% on Wednesday, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index edged down 0.10% to

2,890.92. Hong Kong's Hang Seng Index increased 0.34% to 25,703.50.

     FROM THE PRESS: Chinese banking regulators are planning to roll out

policies on the disposal and restructuring of high-risk banks, Economic

Information Daily reported. At present, risky commercial banks can be taken over

by state-owned banks while in the future, regulators may allow rural commercial

banks to seize problematic agricultural commercial banks, rural credit

cooperatives and town banks, the newspaper said citing Dong Ximiao, a VP at the

Chongyang Institute for Financial Studies. Banks should take more responsibility

through improving their corporate governance and introducing new strategic

investors, the report said citing Wang Yifeng, the chief banking analyst at

Everbright Securities.

     The Chinese yuan's break through the psychologically important level of

seven against the U.S. dollar would help drive the further liberalisation of the

exchange rate, according to a commentary in China Money, a PBOC-operated

magazine. The article, by Guan Tao, a former official at the State

Administration of Foreign Exchange, said the break through would unlock a wider

range which would strengthen the flexibility of the yuan and test the

adaptability of the market to currency fluctuation. Any shock from the yuan's

new level was quickly absorbed by the market, which had confidence in the

Government. Guan said the PBOC had shown its ability to manage market

expectations, and said the currency would not have a free fall.

     A number of banks have recently received window guidance to tighten their

lending to real estate developers, Tencent News reported citing unnamed sources.

The banks have been advised to maintain their property development loans at

end-March levels, the report says, meaning the balance of loans will be reduced

from CNY11.04 trillion at the end of Q2 to Q1's CNY10.85 trillion. Tencent says

this could also be reduced further.

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

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

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