MNI China Daily Summary: Wednesday, September 5

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

on Wednesday, citing "relatively high level of liquidity" can offset impact from

financial institutions paying for reserve requirements. There was no change in

liquidity as no reverse repos matured, according to Wind Information. Today is

the 11th day the PBOC has skipped OMO. CNY176.5 billion one-year MLF matures

this week while no reverse repos mature. CFETS-ICAP money-market sentiment index

closed at 29 yesterday, down from 34 on Monday.

     POLICY: ING note that "even though the PBOC did not change the 7-Day policy

rate, the Shanghai interbank offered rate (Shibor) has fallen quickly, from

4.1550% at the end of June to 3.1740% in July and now 2.8940% in August. ING

believes this is a result of the window guidance from the central bank to

cushion the economy to reduce damaging effects of the escalating trade war. ING

said the central bank would not like the yuan to appreciate against the dollar

even if the dollar strengthens against most currencies. Instead, ING sees the

counter-cyclical factor as a tool to control the speed of yuan depreciation, not

a tool to change yuan direction. As capital outflow channels have been almost

closed, this gives more room for yuan depreciation as the worry of massive

capital outflows is minimised, ING said. 

     YUAN: The yuan fell to 6.8385 against the dollar from Tuesday's closing of

6.8290. Earlier today, the PBOC set the yuan central parity rate at 6.8266,

weaker than Tuesday's 6.8183. Today is the fifth trading day out of six for a

weaker fixing.

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

2.3965% on Wednesday from 2.5110% yesterday, while overnight average decreased

to 2.1493% from 2.1707%: Wind Information.

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

3.6200%, unchanged from the previous close, according to Wind Information.

     STOCKS: The Shanghai Composite Index closed 1.68% lower at 2,704.34. Hong

Kong's Hang Seng Index declined 2.29% to 27,332.72. 

     FROM THE PRESS: China should protect its foreign exchange reserves and not

sacrifice them for stabilizing the yuan, the Economic Information Daily reported

citing Li Yang, an economist at Chinese Academy of Social Sciences and a former

member of the People's Bank of China's Monetary Policy Committee (MPC). China

values yuan exchange rate formation mechanism and its reform more than the level

of exchange rate, Li said. China should reduce the impact of speculative

international capital on its economy, Li noted. The PBOC should not intervene in

the FX system but let the market decide the exchange rate, the newspaper said

citing economist Yu Yongding, who is a former member of the PBOC's MPC.

     Investors may continue to be bullish on Chinese bonds even with the

increased supply of local government bonds, China Securities Journal reported.

Yield on China Government Bond rose about 19 basis points in almost a month due

to surging supplies of local government bonds, the newspaper said citing

industry insiders. The economy, not bond supply, decides bonds' longer-term

performance, the journal said. Investors may be bullish on bonds given China's

"prudential and neutral" monetary policy and slowing economy, the journal said

citing analysts including Ming Ming at Citic Securities.

     Chinese President Xi Jinping announced an eight-action plan for future

development of relations with Africa, the Economic Information Daily reported.

The plan covers industrial capacity improvement, infrastructure, trade, green

development, capacity building, healthcare and sanitation, cultural exchange and

security. China and Africa will nurture growth in the new economy and facilitate

cooperation, the newspaper said.

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

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

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