MNI China Daily Summary: Tuesday, September 12

     TOP NEWS: The People's Bank of China (PBOC) has effectively eliminated the

foreign-exchange risk provision of currency forward contracts. The move by the

PBOC to drop the risk provision apparently pointed to its worries over the

suddenly strengthening yuan. Sun Guofeng, director general of the People's Bank

of China's research institute, said in an email to MNI on Monday that the PBOC's

move was intended to strengthen the price-discovery mechanism in the forex

market. Sun also said the yuan exchange rate is moving toward an even balance,

and that market expectations are becoming more rational.

     DATA: China's fiscal revenues rose in August although at a slower pace than

in July, with tax revenues seeing significant growth due to the stable

performance of the economy and rising prices, according to data released by the

Ministry of Finance on Monday. The MOF said fiscal revenues rose 7.2%

year-on-year to CNY1.07 trillion in August, compared with 11.1% growth in July

and a 1.7% increase last August. The MOF attributed the changes mainly to a

higher comparison base in the same period of last year in the non-tax sector and

rising commodity prices.

     DATA: Vehicles sales in China jumped in August compared with July but

showed a slowdown on an annualized basis, with the performance of the passenger

car sector somewhat sluggish, the China Association of Automobile Manufacturers

(CAAM) said on its website Monday. On a month-on-month basis, total vehicle

sales, comprising both passenger cars and commercial vehicles, jumped 10.89% to

2.19 million units, compared with a decrease of 9.24% in July, according to

CAAM. On an annualized basis, total vehicle sales rose 5.27%, compared with

6.15% growth in July.

     RATES: Money market rates were mixed on Tuesday after the PBOC left

liquidity unchanged via its open-market operations. The seven-day repo average

was last at 2.8656%, down from Monday's average of 2.8705%. The overnight repo

average was at 2.6220% compared with Monday's 2.6182%.

     YUAN: The yuan fell against the U.S. dollar Tuesday after the People's Bank

of China set a weaker daily fixing. The yuan was last at 6.5331 against the U.S.

unit, dropping 0.14% compared with the official closing price of 6.5239 on

Monday. The People's Bank of China set the yuan central parity rate against the

U.S. dollar at 6.5277 Tuesday, weaker than Monday's 6.4997.

     BONDS: The yield on benchmark 10-year China government bonds was last at

3.5633%, down from the previous close of 3.5890%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the motorcycle manufacturing and

wine-making sectors. The benchmark Shanghai Composite Index closed up 0.09% at

3,379.49. Hong Kong's Hang Seng Index was 0.02% higher at 27,961.29.

     FROM THE PRESS: Experts think overall bad-loan pressure on listed banks has

fallen significantly and asset quality of some has increasingly improved, the

China Securities Journal reported Tuesday. According to the China Banking

Regulatory Commission, outstanding bad loans at commercial banks were CNY1.64

trillion in the second quarter and the bad-loan rate was 1.74% -- level with the

quarter before. The newspaper said that asset quality of credit in general was

stable but that divergence exists. The report quoted analysts as saying that

adjustments of industrial structures in the first half led to a more stable

bad-loan rate for listed banks, but that bad-loan pressure still exists. New

loans were mainly low-risk mortgages and in the infrastructure and service

sectors -- showing that banks are generally cautious and their risk preference

isn't high. (China Securities Journal)

     The emergence of banking as the country's most profitable sector may not be

a good thing, the Securities Times said in a commentary on Tuesday. Six banks --

Industrial & Commercial Bank of China, China Construction Bank, Agricultural

Bank of China, Bank of China, Bank of Communications, and China Development Bank

-- are among the top 10 most profitable companies in the country. Their total

profits exceeded CNY1 trillion -- or 36.6% of total profits for the top 500

companies. A total of 245 manufacturers reported combined net profits of

CNY549.31 billion -- or 19.53% of the total profits of the top 500. This

disobeys rules of economic development and causes frustration and worries that

banks are making too much money, the commentary said. Bank profits are eroding

profits in the real economy -- especially manufacturing, it said. Banks

increasingly allocate capital not to the real economy but to the financial

sector, which can cause asset bubbles and more financial risks. Therefore, the

central government needs to impose macroeconomic controls such as regulating

interest rates for loans, service fees and inappropriate wealth management

businesses, the commentary said. (The Securities Times)

     Yuan management should maintain methods which have proved effective, the

Economic Information Daily, a newspaper under the official Xinhua News Agency,

said in a front-page commentary on Tuesday. Recent appreciation of the yuan was

a result of a weakening of the dollar, a strong China economy and the addition

of countercyclical factors, the commentary said. As yuan depreciation pressures

lessened, the People's Bank of China decided to withdraw some temporary measures

aimed at specific problems -- and its decision to eliminate the foreign-exchange

risk provision of currency forward contracts is one of them, the newspaper said.

However, such action to decrease the effect of policies on the yuan doesn't mean

giving up on their influence. As the yuan strengthens, the market may ask for

free fluctuation of the currency, but foreign-exchange policies should be

appropriate and stable, the commentary said. (Economic Information Daily)

     Financial technology regulations must be strengthened as a result of risks,

Sun Guofeng, the head of the People's Bank of China's financial research

department, said in an exclusive interview with the bank-managed Financial News.

Recent central bank action against coin offerings is necessary and timely but

doesn't mean China is trying to stop the development of blockchain, which is a

good technology, Sun said. The biggest problem with China's financial technology

sector is that it lacks regulation, Sun said. (Financial News)

     China and all other countries should take steps to guarantee free trade

with support from multilateral organizations, Premier Li Keqiang said at a press

conference during the 1+6 Roundtable Dialogue on Tuesday in Beijing, according

to a report in Wallstreetcn. China's economy will maintain stable and upward

momentum, continuing the trend shown in the first half of the year, Li said,

adding that the effects of economic structural transformation have started to

show, with the contribution from consumption helping to lift the economy. China

will stabilize its macroeconomic policy and further carry out active fiscal

policies and prudent monetary policies, Li added. China's leverage ratio has

also dropped and government debts are under control, Li said, adding that China

will not stimulate exports by devaluing its currency. (Wallstreetcn)

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

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

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