MNI China Daily Summary: Friday, August 25

     TOPS NEWS: China and Saudi Arabia will create a joint $20 billion fund to

invest in infrastructure, energy, mining and materials, the South China Morning

Post reported Friday, citing Saudi Energy Minister Khalid Al-Falih. Al-Falih

said the two countries plan to sign 11 deals worth about $20 billion this week.

Saudi Arabia is considering contributing some parts of the fund in yuan, said

Mohammed Al-Tuwaijri, the country's vice-minister of economy and planning. The

fund would come as Saudi Arabia is trying to regain its spot as the biggest oil

supplier to China, its biggest trading partner, after Russia took over the top

spot last year. Analysts said Saudi Arabia is eager to cooperate with China due

to China's surging economic influence and the U.S. soft power failure in some

countries. Both China and Saudi Arabia are also hoping to get more economic

influence in the world, according to the newspaper. (South China Morning Post)

     TOP NEWS: The People's Bank of China skipped its open-market operations

Friday, according to a statement on its website. This resulted in a net drain of

CNY130 billion for the day, as a total of CNY130 billion in reverse repos

matured on Friday. The PBOC has drained a net CNY330 billion in liquidity via

its reverse repos this week, compared with the CNY110 billion net injection last

week. The central bank explained in a statement on its website that its inaction

was due to the fact that liquidity was at an appropriate level given the impact

of government fiscal expenditures, the treasury cash deposits it made to banks

on Thursday, bank withdrawals from central bank fund in excess of those required

to meet their reserve requirement ratios. The CFETS-ICAP money-market sentiment

index ended at 40 on Thursday, down from 51 at Wednesday's close. The lower the

reading, the better the liquidity conditions in the interbank market.

     POLICY: Yi Huiman, the chairman of Industrial and Commercial Bank of China

(ICBC), said Thursday at a forum in Beijing that China needs to establish a

"super balance sheet" to manage its financial sector problems. As financial

markets develop, Yi said, traditional indicators like M2 money supply and

deposit-to-loan ratios cannot effectively reflect the real financial situation

and structure of a country, and the problem of different criteria being applied

when compiling financial data begins to stand out. 

     RATES: Money market rates were higher on Friday after the PBOC drained

CNY130 billion via its open-market operations. The seven-day repo average was

last at 2.9344%, up from Thursday's average of 2.9245%. The overnight repo

average was at 2.8655%, compared with Thursday's 2.8590%.

     YUAN: The yuan fell against the U.S. dollar Friday after the People's Bank

of China set a weaker daily fixing. The yuan was last at 6.6654 against the U.S.

unit, dropping 0.08% compared with the official closing price of 6.6600 on

Thursday. The People's Bank of China set the yuan central parity rate against

the U.S. dollar at 6.6579 Friday, weaker than Thursday's 6.6525.

     BONDS: The yield on benchmark 10-year China government bonds was last at

3.6046%, up from the previous close of 3.5969%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the telecommunications, coal mining and

insurance sectors. The benchmark Shanghai Composite Index close 1.83% higher at

3,331.52, the highest close since January last year. Hong Kong's Hang Seng Index

was 1.16% higher at 27,839.08.

     FROM THE PRESS: Most of the 59 property developers listed as A shares which

have already released their first half-year results stressed they would invest

in expanding China's rental housing market followed government prompting to

expand rental housing supply, the Shanghai Securities Journal said in a

front-page report on Friday. The development of the rental housing market and

active participation of listed property companies will further curtail the rise

of housing prices and help the property market to reach a balanced and healthy

development status, the newspaper quoted experts as saying. Currently, larger

property companies tend to have higher profit growth due to stronger sales, the

newspaper noted. "Larger sales scale means lower financing costs and higher

efficiency in land acquisition," the newspaper said. (Shanghai Securities

Journal)

     Ministry of Commerce spokesman Gao Feng said Thursday that one of the

ministry's next most important tasks will be improving checks on the

authenticity of outbound investments, the China Securities Journal reported on

Friday. The ministry will create a "negative list" of prohibited investment

sectors to guide Chinese companies' outbound investment and will conduct random

inspections of their overseas investments, the report said. (China Securities

Journal)

     China's financial risks are more complicated than ever, Yu Xuejun, chairman

of the supervisory board for key state-owned financial institutions under the

China Banking Regulatory Commission, said Thursday at the 2017 China Banking

Development Forum, the China Securities Journal reported Friday. Yu said China's

credit levels continue to surge, financial institutions' balance sheets are

expanding rapidly and their business structures are undergoing major changes,

the report said. Yu also noted that financial regulators are lagging behind

financial innovation and rapid changes in financial institutions, adding that it

is becoming more difficult to manage and regulate China's macro economy. (China

Securities Journal)

     A report by the Chinese Academy of Social Sciences on the Chinese

government's balance sheet shows that China's total assets can fully cover its

total liabilities and still have room for flexibility, the Economic Information

Daily, a newspaper under Xinhua News Agency, said in a front-page report Friday.

From 2010 to 2015, the ratio of Chinese government's net assets to GDP was above

80% on average, with a fluctuation range of CNY40 trillion to CNY60 trillion,

the report said, citing the CASS report, which was released on Thursday. Chen

Hanwen, an accounting professor at the University of International Business and

Economics, said the data show China has the capability to manage financial risks

and refute speculation that China's economy is at risk of collapse. The CASS

report, however, cautioned about the risk of accumulated debt. (Economic

Information Daily)

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

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

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