MNI China Press Digest: Monday, January 8

     BEIJING (MNI) - The following are highlights from the China press for

Monday, January 8:  

     The yuan may lose its strength and trade about 6.6 against the dollar,

Sheng Songcheng, the People's Bank of China's former statistics chief, said

Saturday at a conference in Shanghai, reported Shanghai Securities News. The

Chinese currency closed on Friday at 6.4851, according to MNI data. The yuan had

recently been boosted by the widening gap between China's market rates and the

U.S. Federal Reserve's benchmark interests rate, by the market's betting on the

yuan's appreciation and on the weakening U.S. dollar index, Sheng argued. The

Central Economic Working Conference last month, attended by China's top

policymakers, emphasized controlling money supply and maintaining a "reasonable

and balanced" yuan exchange rate, a decision that has also impacted the market,

Sheng noted. Sharp movements in either direction won't benefit the Chinese

economy, Sheng said. (Shanghai Securities News)

     Top researchers at the People's Bank of China suggested that higher

interest rates may help contain asset bubbles and debt expansion therefore

should be used to manage broad financial activities, the China Daily reported

Monday. Interest rates can be raised now given that prices of industrial

products and profitability have both improved since last year, the paper cited

Ji Min, deputy head of the central bank's research bureau, as saying over the

weekend. Rates of inflation and foreign exchange should be factored in before a

rate hike, Ji said. However, a rate hike coupled with deleveraging and cutting

of excess capacity by industrial producers could further improve returns by

discouraging costly expansion, the report noted. (China Daily)

     The China Banking Regulatory Commission (CBRC) on Saturday issued a

guideline on entrusted loans to further reduce leveraging and preventing risks

in the financial sector, the Economic Information Daily reported. According to

the guideline, asset management products(AMP) cannot be entrusted for bank

loans. Clients of entrusted loans cannot re-lend them for arbitrage. As well,

entrusted loans cannot be invested in bonds, futures, financial derivative

products or AMP. Citing unidentified sources, the newspaper said the new rule

targets non-standard funding through AMPs issued by securities and mutual fund

companies. It also affects entrusted loans such as those in properties and local

government financing vehicles, the report said. (Economic Information Daily)

     China's small and medium-sized city commercial banks may be under greater

pressure to reduce balance sheets by the government's push for deleveraging and

stricter oversight, the China Securities Journal reported Monday, citing Zeng

Gang, director of Banking Research Center with the Chinese Academy of Social

Sciences (CASS). Regulators will focus on shadow banking and cross risks in the

financial sector this year, and continue cracking down on illegal businesses.

Off-balance-sheet transactions will be made more transparent, so banks can no

longer expand using shadowy transactions, the report noted. (China Securities

Journal)

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

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

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