MNI China Daily Summary: Wednesday, August 22

     TOP NEWS: The People's Bank of China (PBOC) will strike a balance between

pressing ahead with its deleveraging drive and ensuring a "reasonable and

adequate" supply of liquidity to the economy, Zhu Hexin, the newly-appointed

vice governor of the central bank, said at a press conference on Tuesday. Zhu

pointed to subdued risk appetite among Chinese lenders and the poor

creditworthiness of some firms as key factors that are currently constraining

the supply of liquidity to the real economy.

     YUAN: The yuan weakened to 6.8434 against the U.S. dollar on Wednesday from

Tuesday's 6.8380 closing, despite a stronger fixing. The PBOC set the yuan

central parity rate at 6.8271 on Wednesday, stronger than Tuesday's 6.8360, the

fourth consecutive trading day with a stronger fixing. 

     LIQUIDITY: The PBOC skipped open market operations (OMO) on Wednesday,

stating on its website that the steady increase of month-end fiscal expenses can

offset the liquidity drain on the back of local government bond issuance. No

reverse repos matured today. It was the first OMO since Aug 14, CFETS-ICAP's

money-market sentiment index closed at 36 on Tuesday, down from 38 on Monday.

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

2.6514% on Wednesday from 2.6632% on Tuesday; the overnight average decreased to

2.5269% from 2.6240% on Tuesday: Wind Information.

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

3.6250%, compared with 3.6300% on Tuesday, according to Wind Information.

     STOCKS: Shares in Shanghai declined on Wednesday, with the Shanghai

Composite Index closing 0.7% lower at 2,714.61. Hong Kong's Hang Seng Index rose

by 0.48% to 27,886.80.

     FROM THE PRESS: China inflation will gain steadily, and the recent high

inflation concerns were unnecessary, the Economic Daily said Weds. China's CPI

is still below the 3% target, and only at 5% would it be considered serious,

said the daily. Global protectionism remains an uncertainty for the inflation

coutlook, but factors benefitting steady inflation prevail, the paper said.

Domestic soybean prices have not risen significantly, despite the ongoing trade

conflicts and the decline of global gasoline price may offset price increases of

steel and coal, said the daily.

     Market participants should gradually adjust to a more flexible yuan

exchange rate given the recent two-way swings, China Securities Journal said. A

flexible FX system performed as an "automatic stabilizer", the journal said. The

yuan would stabilize after recent pressures as market expectation settle,

cross-border capital flows abate and general demand and supply balances, the

newspaper said.

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

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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