MNI China Daily Summary: Thursday, August 30

     TOP NEWS: The People's Bank of China will prop up the yuan at least until

the U.S. goes ahead with its threat to impose 25% tariffs on another $200

billion worth of Chinese goods, and the currency is unlikely to breach 7 to the

dollar this year, MNI has learned from officials and government advisors. The

yuan has depreciated more than 9% since mid-April, in a development officials

have seen as helping to counteract the effect of any U.S. measures against the

country's exports. But Beijing does not want to further provoke Washington with

an excessive devaluation, and the PBOC moved to support the currency last

Friday, announcing that it had reintroduced the so-called "counter-cyclical

factor" into its daily fixing formula since August.

     LIQUIDITY: The People's Bank of China skipped its open market operations on

Thursday, stating on its website that increases in month-end fiscal expenses

will offset the liquidity drain due to local government bond issuance. The

PBOC's inaction resulted in no change in liquidity, as no reverse repos matured

today, according to Wind Information. It was the seventh consecutive day that

the PBOC has skipped OMO. CFETS-ICAP's money-market sentiment index closed at 34

on Thursday, down from 36 on Wednesday.

     YUAN: The yuan slid to 6.8376 against the U.S. dollar from Wednesday's

closing of 6.8218. The PBOC set the yuan central parity rate at 6.8113 on

Thursday, weaker than Wednesday's 6.8072.

     YUAN: USDCNH is testing yesterday's high, trading at 6.8348 as of 12:12pm

Beijing time, with the 21-dma at 6.8505 the next level of resistance. The yuan's

recent weakness contrasts with continued strength in the euro, which is causing

EURCNH to test resistance at 8.00 again. A break above here would be a very

bullish technical move.

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

2.6135% from 2.6302% on Wednesday; the overnight average decreased to 2.2624%

from 2.3716%: Wind Information.

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

3.6050%, down from the previous close of 3.6100%, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 1.14% lower at 2,737.74. Hong

Kong's Hang Seng Index was down 0.89% at 28,164.05.

     FROM THE PRESS: Bond yields are expected to remain stable, as the impact of

local government bond issuance is limited and temporary, and as money supply is

still ample, the China Securities Journal reported. With looser monetary policy

bringing more liquidity to the Chinese market, the U.S. Fed expected to further

increase its interest rate, and the yuan still facing downward pressure,

investors should pay close attention to economic data, the Journal said. It

will, however, take time for the easier conditions to feed through into economic

data. Bond markets are likely to fluctuate in Q3, reflecting oscillating

investor sentiment, but should see clearer trends in Q4, the Journal reported.

     The Bank of China will give around USD100 billion in credit to Chinese

companies involved in commerce, said the bank's president Liu Liange, according

to Tencent News. The bank provides an international trade settlement service

worth more than USD650 billion, Liu said. The bank will help Chinese companies

in their global market expansion, especially across ASEAN, central and eastern

Europe, Africa and Latin America, according to Liu.

     Beijing will further cut taxes for companies, particularly micro-businesses

and innovative companies, the Economic Information Daily, a newspaper owned by

the official Xinhua News Agency, reports, citing government researchers and

experts. Tax reduction for micro-businesses and start-ups should boost

innovation, said Li Wanfu, director of the Tax Sciences Research Institute under

the State Administration of Taxation. The move will contribute to the official

goal of cutting taxes by at least CNY1.1 trillion this year, the newspaper 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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