MNI China Daily Summary: Thursday, September 20

     TOP NEWS: China should continue with its deleveraging drive, even if

policymakers have had to temporarily ease off the campaign to avoid an economic

slowdown, a government advisor told MNI Wednesday. "The deleveraging policies

should not make a 180-degree turn because there are still a pile of problems in

economy," Zhang Xiaojing, deputy director-general at the National Institution

for Finance & Development under the Chinese Academy of Social Sciences (CASS)

told MNI on the sidelines of the World Economic Forum's summer gathering in

Tianjin. Stabilizing growth shouldn't compromise targets of promoting reform and

preventing financial risks, he said.

     POLICY: Chinese stocks are giving back some gains but the recovery off the

lows remains intact with the CSI300 remaining clear of down trendline

resistance-turned-support at 3300. The HSI is trading flat on the day at 27400,

still clear of Aug 14 highs as the rally shows an impulsive structure. The

tech/small cap Chinext index is slightly lagging, remaining below resistance at

1400 and still locked in its downtrend. A break above 1400 would likely cement

the recovery across Chinese stocks. Chinese rate markets are signaling a solid

return to risk appetite, and rising stocks would likely accelerate the backup in

yields, to the benefit of the yuan.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY40 billion via

7-day reverse repos and CNY30 billion via 14-day reverse repos on Thursday,

resulting in a net liquidity drain of CNY 30 billion, as CNY100 billion in

reverse repos matured today, according to Wind Information. Today's was the

first drain in three weeks. CFETS-ICAP's money-market sentiment index closed at

49 on Thursday, up from 43 on Wednesday.

     MONEY MARKET RATES: The 7-day repo average dropped to 2.6469% from 2.6608%

Wednesday. The overnight repo average decreased to 2.5152% from Wednesday's

2.5601%.

     YUAN: The yuan slid to 6.8578 against the U.S. dollar from Wednesday's

closing of 6.8528. Earlier today, the PBOC set the yuan central parity rate

stronger for the first time this week at 6.8530, compared with Wednesday's

6.8569.

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

3.6850%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.06% lower at

2729.24. Hong Kong's Hang Seng Index rose 0.26% to 27,477.67.

     FROM THE PRESS: China's monetary policy should not be regarded as powerful

a tool as in the past, Economic Information Daily said in a commentary. Previous

models over-emphasised a high rate of growth and loose monetary policy, the

newspaper said. Policy targets should be reached by a mix of measures and

deepening reform, rather than by relying solely on monetary policy, the

commentary said. A slowdown in growth of yuan-denominated deposits in Chinese

banks is expected to continue, Economic Information Daily reported on Thursday,

citing experts. Yuan-denominated deposits increased 8.3% y/y to CNY175.24

trillion in August, 0.2 and 0.7 percentage points lower than in July and in

August 2017 respectively, the newspaper said, citing PBOC data. Some funds have

been diverted from deposits to higher-yielding wealth management products, the

newspaper said, citing experts including Dong Ximiao, senior researcher at

Renming University's Chongyang Institute for Financial Studies. A slowing

deposit growth rate may not be a bad thing as China's banking assets are three

times GDP, and it is likely that banks will shrink balance sheets in the future,

the newspaper said, citing Zeng Gang, director of the banking research office of

China Academy of Social Sciences.

     Local government bond issuance has reached CNY1.5 trillion so far this year

on the Shanghai Stock Exchange alone, Securities Daily reported. It took only a

month for the issued bonds to increase to the current level from CNY1 trillion

on August 20, the newspaper said. The surge came after the central government

called for speeded-up issuance of special bonds to finance investment, a

securities firm researcher was cited as saying. The Shanghai Stock Exchange is

improving the trading system for local government bonds and is enhancing their

liquidity, the newspaper said, citing an unidentified source.

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

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