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TOP NEWS: September and October saw the People's Bank of China (PBOC)
smother the interbank market with money to ensure stability ahead of, during and
after the 19th Communist Party Congress. The PBOC injected a net CNY508 billion
via monetary instruments in November, the second-largest net injection this year
after CNY888.5 billion in October. In spite of the central bank's actions,
traders are beset by gloom over the crackdown on financial leverage that has
exacerbated the drop in bond prices and cut the amount of spare cash sloshing
around the interbank market looking for a home.
TOP NEWS: A market-oriented yuan exchange rate and capital outflows will be
the new normal as the People's Bank of China gradually withdraws from regular
market intervention, Guan Tao, former head of the balance of payments division
at the State Administration of Foreign Exchange (SAFE) and now a research fellow
with the China Finance 40 Forum think tank, wrote on the think tank's website
late Thursday. China will eventually achieve an international payments balance
between its trade surplus and its capital outflows, Guan predicted. The yuan's
appreciation this year was determined by where the PBOC set its daily parity,
not by the market supply and demand situation, Guan said. The measures
controlling cross-border capital flows are temporary and the stability of the
yuan exchange rate is also temporary, so market participants should prepare for
more volatility of the exchange rate and improve their risk management capacity,
LIQUIDITY: The People's Bank of China skipped open-market operations on
Friday, saying high fiscal expenditures at the end of November added to
liquidity and so could offset the impact of maturing reverse repos. This
resulted in a net drain of CNY40 billion for the day, as a total of CNY40
billion in reverse repos matured on Friday, after four consecutive trading days
when the PBOC left liquidity conditions unchanged. The PBOC drained a total of
CNY40 billion via open-market operations this week.
DATA: Activity in China's manufacturing sector saw "marginal" improvement
in November, but at a slower pace than in October, as output and new order
growth rose "only modestly," according to the latest Caixin Manufacturing
Purchasing Managers' Index (PMI) released Friday. The headline manufacturing PMI
registered 50.8, the weakest level in five months, falling from 51.0 in October.
The index remained above the 50 break-even mark for the fifth consecutive month,
according to data compiled by IHS Markit for Caixin magazine.
RATES: Money market rates fell. The seven-day repo average was last at
2.8373%, a big fall from Thursday's average of 2.9471%. The overnight repo
average was at 2.5956%, much lower Thursday's 2.8031%.
YUAN: The yuan strengthened slightly against the U.S. dollar even though
the People's Bank of China set the fixing rate weaker for the day. The yuan was
last at 6.6096 against the U.S. unit, compared with the official closing price
of 6.6107 on Thursday. The PBOC set the yuan central parity rate at 6.6067,
weaker than Thursday's 6.6034. It was the fifth consecutive trading day the PBOC
set a weaker fixing.
BONDS: The yield on benchmark 10-year China government bonds was last at
3.8900%, compared with the previous close of 3.9000%.
STOCKS: Stocks were up slightly, led higher by the information technology
sector. The benchmark Shanghai Composite Index closed up 0.01% at 3,317.62. Hong
Kong's Hang Seng Index was 0.11% lower at 29,144.16.
FROM THE PRESS: The expansion of listed Chinese commercial banks has slowed
so far this year but profits continue to grow due to the robust economy, stable
monetary policy with a tightening bias, and stricter regulation, the Financial
News, a journal run by the People's Bank of China, reported Friday, citing the
latest note from the Bank of China. Net profits of listed banks are expected to
increase 4.3% and the non-performing loan ratio will stand at around 1.6% in
2017, the report said. Rising profits of industrial companies have reduced the
default risk of their loans. Asset qualify will improve in 2018 as credit risks
are reduced further, the report argued. The BOC predicted GDP would rise 6.7% in
2018, the newspaper noted. (Financial News)
There will be no liquidity crunch during the crossover from 2017 to 2018,
as fiscal spending is expected to increase in December and the People's Bank of
China is fully prepared to meet liquidity needs via its newly created 63-day
reverse repo, the China Securities Journal reported Friday. But liquidity
volatility is inevitable considering cash demand by companies and households is
increasing, the quarterly Macro-Prudential Assessment is approaching, a large
volume of negotiable certificates of deposit will mature this month and capital
outflows will rise, particularly after the U.S. Federal Reserve hikes the fed
funds rate and further shrinks its balance sheet, the report warned. The PBOC
will take measures to ensure the stability of liquidity in the interbank market,
the report noted. (China Securities Journal)
New Chinese government policies to encourage foreign investment are likely
to be launched in the near future and at an intensive pace, the Economic
Information Daily reported Friday. China will gradually lift restrictions on
corporate share holdings by foreign investors in a number of sectors including
securities, funds, futures as well as insurance, the report said. The opening up
of the service sector will be accelerated, and foreign investment in education,
medicine and culture will also be welcomed, the report noted. (Economic
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