MNI China Daily Summary: Friday, April 20

     TOP NEWS: China's central bank plans to let more foreign firms manage

domestic investments in overseas markets as part of its measures to relax

restrictions on movement of capital in and out of the country, an official at

the bank's FX regulator told MNI in an interview. The so-called Qualified

Domestic Limited Partnership (QDLP), a scheme allowing foreign institutions to

tap into China's multi-trillion dollar wealth management market, will be

increased, and controls on capital will be lifted at an "active, gradual and

controllable" pace, Wang Chunying, spokeswoman of State Administration of

Foreign Exchange, told MNI on the sideline of a press conference on Thursday.

"We have restarted a new round of quota issuance of Qualified Domestic Limited

Partnership (QDLP) in Shanghai and a similar scheme in Shenzhen since the end of

last year; it's an active trial for the opening up of capital market," Wang

said.

     MONEY WEEK: The PBOC's required reserve ratio cut fuelled a big rally in

bond markets this week, and the potential for further easing measures in the

event of a trade war will offer support for bond markets. The yield on 10-year

China Government Bond and 10-year China Development Bank Bond fell 15 and 22

basis points respectively on Wednesday, and remain close to one-year lows. While

the prospect of increasing bond supply and renewed bullish sentiment in the

market are headwinds to further yield falls, there are still reasons to be

optimistic about the bond market.

     LIQUIDITY: The PBOC skipped OMO on Friday, stating that it will do an

auction on the day to deposit CNY80 billion from the Treasury into the banking

system. This resulted in unchanged liquidity conditions as no reverse repos

matured today. The PBOC has injected a total of CNY470 billion via its open

market operations this week. CFETS-ICAP's money-market sentiment index closed at

76 on Thursday, up from 63 on Wednesday, caused by tax payments and insufficient

OMOs injected. 

     MONEY MARKET RATES: 7-day repo average was last at 3.0075%, up from 2.9890%

Thursday, after PBOC's inaction in open-market operations resulted in no change

in liquidity condition. The overnight repo average dropped to 2.8101% from

Thursday's 2.8226%.

     RATES: The Ministry of Finance sold CNY10 and CNY30.3 billion respectively

of 3-month and 30-year China Government Bonds via auction Friday at yields of

2.6242% and 4.0031%. The former yield was higher than the 2.5517% for bonds with

the same maturity trading in the secondary market Thursday, while the latter was

lower than the 4.0059%.

     YUAN: The yuan fell against the U.S. dollar after PBOC set a weaker daily

fixing. The yuan fell 0.13% to 6.2857 against the U.S. unit, compared with the

official closing price of 6.2778 yesterday. The People's Bank of China set the

yuan central parity rate at 6.2897 Friday, weaker than Thursday's 6.2832,

marking the third consecutive trading day that the central bank has set a weaker

fixing. PBOC has set the fixing weaker for three trading days out of five this

week.

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

3.5500%, up from the previous close of 3.5100%, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led lower by agricultural companies,

with Great Sun Foods down by more than more than 7%. The benchmark Shanghai

Composite Index closed down 1.47% at 3,071.54. Hong Kong's Hang Seng Index

gained 0.74% to 30,480.34.

     FROM THE PRESS: Money supply is tight as the end of the month approaches

and as the PBOC's RRR cut has not taken effect yet, 21st Century Business Herald

reported. The CNY400 liquidity injection from the PBOC through the RRR cut will

barely caused any change in liquidity as it will balance out month-end tax

payments, analysts said, adding it shows that the central bank maintains a

prudent monetary policy. Because liquidity is tight, overnight reverse repo was

2%-3% on April 19, but some financial institutions raised the rate to as high as

10%; seven-day was 3%-4%, with some increasing the rate to 7%, the newspaper

reported.

     The U.S.' efforts to impede China's technology development will not only

trigger retaliations from China but also motivate the country to further its

reform and improve innovation, Economic Information Daily said in a commentary.

The U.S. restricts sales of technology products by Chinese companies such as

Huawei and ZTE, and is considering prohibiting Chinese companies from providing

cloud computing. Such policies should remind Chinese companies they have to

advance their innovation and further cooperation with other countries.

     Few Chinese banks have raised their deposit interest rates over the past

week but signals from the PBOC Governor Yi Gang indicate the central bank may

reduce restrictions for banks to do so soon, China Securities Journal reported.

The PBOC's removal of restrictions on deposit rates may be a gradual process,

and is not likely to remove the restrictions at the same time for all banks,

said experts, including Li Yamin, chief securities and banking analyst at Bank

of China International, as well as anonymous managers at Chinese banks. Banks

will not raise their deposit rates too much in order to avoid a rat race, an

anonymous bank manager said.

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

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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