MNI China Daily Summary: Tuesday, August 20

     PBOC: The People's Bank of China (PBOC) set the one-year Loan Prime Rate

(LPR) at 4.25%, and five-year LPR at 4.85% on Tuesday, a new reference rate for

bank loans. Under the new regime, the LPR pricing will be linked to the one-year

medium-term lending facility, a rate that is viewed as being closer to market

rates for credit and will help lower the cost of borrowing for private

companies.

     POLICY: The PBOC played down the weekend reforming of the lending rate

formation system as a rate cut, saying it was an incentive to smooth monetary

policy transmission, according to the briefing held by Liu Guoqing,

vice-governor of the PBOC, and Sun Guofeng, the head of the bank's monetary

policy department today. Reform cannot replace moves in monetary policy and

other policies, but it will help the already-low money market rates transmit to

lending rates across the real economy. The liquidity situation is overall

decided by PBOC action, Liu said, noting the reform is to optimize the system,

not policy replacement.

     LIQUIDITY: The PBOC injected CNY50 billion via 7-day reverse repos, adding

liquidity for a seventh consecutive day. This resulted in a net drain of CNY10

billion given the maturity of CNY60 billion in reverse repos, according to Wind

Information.

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

institutions (DR007) fell to 2.6635% from Monday's close of 2.6745%, Wind

Information showed. The overnight repo average decreased to 2.6387% from 2.6663%

on Monday.

     YUAN: The yuan closed at 7.0634 against the U.S. dollar from 7.0445 on

Monday. The PBOC set the dollar-yuan central parity rate higher at 7.0454,

compared with 7.0365 on Monday.

     BONDS: The yield on the 10-year China Government Bond was last at 3.0300%,

up from Monday's close of 3.0175%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index fell 0.11% to 2,880.00. Hong

Kong's Hang Seng Index decreased 0.23% to 26,231.54.

     FROM THE PRESS: The new LPR reference rate for bank loans released by the

PBOC today would not impact on the interest rate spreads of commercial banks in

the short term, China Securities Journal reported. Citing economists, the

Journal reported that the move would, however, impact on the spread level in the

long run and lead to a gradual increase in banks' risk appetite. This would

benefit the real economy as these banks served small companies. Meanwhile,

mortgage interest rates are unlikely to go down and there would still be some

upside in the short term amid tightening housing regulations, the newspaper

added.

     Economic conditions in China could deteriorate in the second half of 2019

unless policy measures are taken to stabilize the downward trend in the growth

rate, Beijing News reported. Citing Yu Yongding, former member of the central

bank's monetary policy committee, the report said the best approach was to

increase the fiscal deficit rate from the current 2.8%, while the 3% ceiling was

not necessarily appropriate.

     China should increase policy support to stabilize business and employment

with a particular focus on labour intensive industries, according to Chinese

Premier Li Keqiang. Li was speaking in a meeting on labour market stability on

Monday and his comments, reported by the China Securities Journal, also urged

the effective implementation of tax and fee cuts to offer release to private and

small companies.

--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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]