MNI China Daily Summary: Wednesday, September 19

     TOP NEWS: China is "fully capable" of maintaining yuan stability and won't

seek to boost exports through currency depreciation, Premier Li Keqiang said at

the World Economic Forum's summer meeting in Tianjin on Wednesday.

     POLICY: Beijing will increase infrastructure investment in agriculture and

transportation, the economic planning department said Tuesday, as China's

exports faced a fresh onslaught from U.S. tariffs.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY40bn and CNY20bn

via its 7-day and 14-day reverse repos respectively on Wednesday, resulting in

no change in liquidity as CNY60bn reverse repos matured today, according to Wind

Information. A total of CNY270bn in reverse repos will mature this week.

CFETS-ICAP's money-market sentiment index closed at 43 on Tuesday, down from 60

on Monday.

     YUAN: The yuan strengthened to 6.8486 against the USD from Tuesday's

closing of 6.8534. The PBOC set the yuan central parity rate at 6.8569 on

Wednesday, weaker for a third consecutive trading day.

     YUAN: EURCNH is at risk of losing its grip on the 8.0 level, which would

mark another failure on the part of bulls to sustain a break higher. Attention

would then turn to the 21-dma at 7.9661, with a break below this needed to shift

the focus lower. The euro is benefitting from the recovery in Italian bonds,

which is helping to drive German yields higher, while the yuan is being buoyed

by a recovery in equities and hawkish comments by Premier Li earlier today.

GBPCNH is testing resistance-turned-support at the 9.0 level, which needs to

hold to prevent a potential bearish reversal in the pair.

     YUAN: USDCNH was trading close to daily lows at 6.8500 as of 12:29pm, as

bears looked to target the Sep 13 low of 6.8228. Several factors seem to be

aligned for a bearish move in USDCNH, but one exception is China-U.S. yield

spreads. The spread of China's 2-year interest rate swap over the U.S. has

fallen back to zero today, reducing fundamental support for the yuan.

     MONEY MARKET RATES: The benchmark seven-day deposit repo average decreased

to 2.6608% on Wednesday from 2.7104% Tuesday, while the overnight average

dropped to 2.5605% from 2.6586%: Wind Information.

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

3.6800%, up from Tuesday's close of 3.6450%, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 1.14% higher at 2,730.85. Hong

Kong's Hang Seng Index rose 1.19% to 27,407.37.

     FROM THE PRESS: Chinese Premier Li Keqiang stated China should further open

its economy and announced measures to boost imports and keep exports stable, the

official Xinhua News Agency reported. Meanwhile, at a State Council meeting on

Tuesday, Li urged local governments to cut business taxes amid "complicated

global situations." China "should not overly rely on investment, nor give up on

investment," to ensure stable employment and enact supply-side reforms. He also

encouraged policymakers to improve credit access for companies involved in

foreign trade, especially SMEs.

     The Shenzhen Stock Exchange saw its largest ever local government bond

issuance on Tuesday, valued at more than CNY98bn, the China Securities Journal

reported. Of the total, Hebei Province issued around CNY42.7bn, Shaanxi around

CNY16.5bn, and Hubei around CNY38.7bn, the report said. Debt issued included

special bonds for land acquisition and shanty-town renovation, as well as bonds

for improving healthcare and sanitation, the newspaper said.

     Authorities are drafting rules to lower income tax in proportion to higher

mortgage and rent costs, the Securities Daily reported. The stimulative effects

of this measure would be similar to directly lowering mortgage rates. Coupled

with a reduction in rental costs, the measure should boost property demand, said

Huang Zhilong, director of macro-economy research centre of Suning Institute of

Finance.

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

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

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