MNI China Daily Summary: Tuesday, August 21

     LIQUIDITY: The People's Bank of China injected CNY50 billion via its 7-day

reverse repos on Tuesday, resulting in a net injection of CNY50 billion as no

reverse repos matured today, according to Wind Information. The PBOC injected

CNY120 billion via OMOs on Tuesday. CFETS-ICAP's money-market sentiment index

closed at 38 on Monday, up from 36 on Friday.

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

2.6635% on Tuesday from 2.6739% on Monday; the overnight average increased to

2.6281% from 2.6260% on Wednesday: Wind Information.

     YUAN: The yuan strengthened to 6.8441 against the U.S. dollar on Tuesday

from yesterday's 6.8525 closing, following today's much stronger fixing. The

PBOC set the yuan central parity rate at 6.8360, much stronger than Monday's

6.8718.

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

3.6405%, up from the previous close of 3.6326%, according to Wind Information.

     STOCKS: Equities are joining in on the risk rally in Chinese markets with

the CSI300 up 1.9% and HSI up 0.5% as both markets show signs of bullish

divergence which point to a potential market bottom. This chimes with the rise

in rate expectations seen over the past week, which saw 2-year swaps trade at a

3-week high today at 2.9350%. This comes as US swaps have edged down, resulting

in the China-US 2-year swap spread hitting a monthly high at 13.8bps. This is

helping USDCNH edge lower following its break below 21-dma support. The next

downside target is the 6.7360 pivot area.

     FROM THE PRESS: A draft regulatory document on trust companies has been

issued to local banking regulators, but is no stricter than the general wealth

management product (WMP) regulations announced earlier this year, China

Securities Journal reported, citing unidentified insiders. The document divides

so-called "channel businesses" -- banks using trust companies as a channel to

move assets off-balance sheets -- into the categories of 'malicious' and 'good

faith,' with the former being identified as those whose operations need to be

ended and the latter as ones that should be allowed to continue. However, it has

not been confirmed whether this categorisation will appear in the finalised

regulatory document, the newspaper noted. ***Comments: Less strict WMP rules

indicate the government's efforts to provide some relief to financial

institutions and slow the pace of deleveraging, amid pressure to hit the annual

GDP target during the ongoing trade war with the U.S.

     Chinese authorities have formulated an undisclosed near-term timetable for

the ongoing deleveraging drive, the Economic Information Daily reported.

According to the timetable, implementation of related policies will be carried

out at an accelerated pace over the remainder of this year, as the newspaper

learned from the National Development and Reform Commission. Policies on

cleaning zombie companies out of the market will be further improved, the

newspaper said, to speed up the process of highly leveraged and low-efficiency

companies exiting the market. Market-based debt-to-equity swaps will be further

used to help highly leveraged but promising companies to reduce their leverage,

it said.

     Chinese regulators may require financial trust companies to stop financing

selected property companies, amid tightening controls over credit to highly

leveraged property developers, China Securities Journal reported. Rumour has it

that banking regulators have issued a document, not disclosed publicly, to banks

in Fujian, Zhejiang, Jiangsu and Shanghai, which requires a pause in new

financing from financial trust companies to property companies, the newspaper

said. Only some companies received window guidance from regulators prohibiting

new borrowing from financial trusts, and the window guidance is not targeting

the whole property sector, the newspaper said, citing a high-level manager of a

financial trust.

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

--MNI London Bureau; +44 207-862-7489; email: ukeditorial@marketnews.com

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