MNI China Daily Summary: Thursday, October 11

     TOP NEWS: China's stock market suffered from a sharp sell-off Thursday, as

worries over the U.S. trade war intensified and concerns over further Federal

Reserve interest rate hikes gather pace. The benchmark Shanghai Composite Index

dropped 5.22% to close at 2583.46, which is the biggest fall in a single day

ever since February 2016. The plunge happened against the backdrop of a

worldwide market correction, with shares across Asia and Europe all heading

lower after the U.S. markets ended lower Wednesday. Hong Kong's Hang Seng Index

fell 3.6% to 25250.41.

     POLICY: Negotiating in a mutually respectful way, with sincerity and on an

equal basis is the best way to tackle the spiralling trade war between China and

the U.S., China's Ministry of Commerce on Thursday. MOFCOM urged the U.S.

administration to "return to a track of win-win cooperation, " language similar

to the rhetoric used over recent months. 

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

Thursday, leaving liquidity unchanged as no reverse repos matured, according to

Wind Information. The central bank said liquidity in the banking system was at a

relatively high level and able to absorb the impact of government bond issuance

and other factors. This is the seventh straight trading day the PBOC has skipped

OMOs. The benchmark 7-day deposit repo average increased to 2.6412% on Thursday

from 2.5934% on Wednesday, Wind Information data showed.

     MONEY MARKET RATES: The 7-day repo average increased to 2.5952% from

2.5934% Wednesday. The overnight repo average decreased to 2.3453% from

Wednesday's 2.3801%.

     YUAN: The yuan depreciated to 6.9290 against the U.S. dollar from

Wednesday's close of 6.9194. The PBOC set the yuan central parity rate at 6.9098

on Thursday,weaker for an eight straight trading day. 6.9072 on Wednesday.

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

3.58%, down from the closing price of 3.6125% on Wednesday, according to Wind

Information.

     FROM THE PRESS: The yuan exchange rate will fluctuate at a balanced and

reasonable level, and there is no room for significant depreciation, said Wen

Bin, the chief analyst at China Minsheng Bank, in an interview with Securities

Daily. China's various macro-control policies are in place and domestic demand

is expanding. Thus, it is expected that the macroeconomy will remain stable in

the fourth quarter, Wen said. Both the international balance of payments and

cross-border capital flows remain balanced, Wen added. The yuan exchange rate

volatility has increased significantly in the second half of this year, which

may cause the rate to fall below the barrier of 7.0, said Ming Ming,

fixed-income chief analyst at CITIC Securities to the Securities Daily.

     US Vice President Mike Pence's recent China speech is "a big joke" that

discredits and demonises China, said Jia Xiudong, a distinguished research

fellow at the China Institute of International Studies, in a front-page

commentary piece in the People's Daily Overseas Edition. China has no intention,

no interest and no habit of interfering with U.S. elections or any other

internal affairs, the piece stated, arguing against Pence's accusations of China

in his speech. In the context of the China-US trade war, Pence's comments on

America's China policy reflect the negative attitude and the difficult stance

that the US has taken on China-related issues, which will undoubtedly exacerbate

the tension between the two countries, Jia said.

     The theory that the next global financial crisis will start in China is

groundless, the Economic Daily said in an opinion piece published Thursday.

Predictions regarding a China crisis focus on the nation's currently high

leverage levels. For more than a decade, predictions have shifted from expecting

a hard landing in the Chinese economy, to expecting systematic financial risks,

the newspaper said. The growth rate of China's macro leverage ratio has slowed

significantly. In 2017, it was 10.9 percentage points lower than the average

annual growth rate from 2012 to 2016. In the first quarter this year, it was 1.1

percentage points lower than that of the same period last year. This shows

China's structural deleveraging campaign has taken effect, the Economic Daily

said.

--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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