MNI China Daily Summary: Tuesday, September 17

     TRADE: China's Vice Finance Minister Liao Min, also a deputy director of

the General Office of the Central Financial and Economic Affairs Commission,

will lead a team to the U.S. on Wednesday to prepare for the 13th round of trade

negotiations set for Washington in October, according to a statement on the

website of the Ministry of Commerce.

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

(OMOs). This resulted in a net drain of CNY80 billion given the same amount of

reverse repos matured, according to Wind Information. 

     The PBOC injected CNY200 billion via one-year medium-term lending facility

(MLF) on the same day, according to a statement on its website. The injection is

CNY65 billion less than the MLF maturing today. The MLF rate is unchanged at

3.3%, the PBOC said.

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

institutions (DR007) rose to 2.6103% from Monday's close of 2.5859%, Wind

Information showed. The overnight repo average increased to 2.5713% from

Monday's 2.3358%. 

     YUAN: The yuan weakened to 7.0929 against the dollar from Monday's close of

7.0640. The PBOC set the dollar-yuan central parity rate higher at 7.0730,

compared with 7.0657 on Monday.

     BONDS: The yield on 10-year China Government Bonds was last at 3.1425%, up

from the close of 3.1325% on Monday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index tumbled 1.74% to 2,978.12, after the

PBOC issuing CNY200 billion MLF at the same rate of 3.3%. The market had

anticipated a cut. Hong Kong's Hang Seng Index dropped 1.23% to 26,790.24. 

     FROM THE PRESS: Borrowing costs have not fallen sharply and some of the

money market rates have even risen after the recent reserve requirement ratio

(RRR) cut, the China Securities Journal reported. The response is due to the tax

season and large amount of reserve repos maturing which have drained the

liquidity released by the RRR cut, the newspaper said. Going forward, there is

still considerable liquidity to be released by the RRR cut and fiscal spending

in September, the newspaper said.

     It is not in China's best interest to cut benchmark lending rates now, as

the economy needs room for a pickup in inflation or a possible economic

downturn, the China Securities Journal said in a commentary. There is

theoretically room for rate cuts of between 50 to 75 bps, not taking deposit

rates into consideration, the journal said.

     The Saudi oil field attack will have a major impact on China's

petrochemical industries given that the Middle East is the biggest source of

China's oil imports, the Securities Daily reported. China should use oil futures

to mitigate the impact on China's capital market, activate oil reserves, and

deepen energy cooperation with African states, the newspaper said citing Pan

Xiangdong, chief economist at New Times Securities.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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