MNI China Daily Summary: Friday, December 8

     TOP NEWS: The Chinese government's historic push to reduce air pollution in

northern China this year is having an unexpected positive side effect: reducing

trade friction with trading partners who have long complained about the flood of

cheap Chinese steel exports into their own markets. In China, which accounts for

more than half of the world's output of steel, export margins for pipes,

reinforcement bars, cables and sheets have plunged, coupled with the lowest

domestic stockpiles in more than a year. Shipments in the first 11 months were

70 million tons, down 31% year-on-year, according to trade data released Friday.

The reduced export trend is likely to persist for some time, according to

commodities traders and analysts interviewed by MNI.

     TOP NEWS: China's General Administration of Customs released November trade

data on Friday: Exports rose 12.3% year-on-year in November in U.S. dollar

terms, double MNI's survey median forecast for a 6.0% y/y gain and well above

the growth rate of 6.9% in October. The export growth rate was the highest since

March 2017 when it stood at 15.6%. Imports rose 17.7% year-on-year in November

in U.S. dollar terms, also higher than the MNI survey median forecast for an

11.0% y/y gain and slightly above the 17.2% rise in October. Imports rose for

the 13th month in a row, with the growth rate accelerating in each of the four

month recent months. China posted a $40.21 billion trade surplus in November,

higher than the MNI survey median forecast for a $36.50 billion surplus and

above October's $38.19 billion surplus. 

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

Friday, saying liquidity in the banking system in general is at a proper level.

This resulted in a net drain of CNY10 billion for the day, as a total of CNY10

billion in reverse repos mature on Friday. The PBOC has drained a net CNY510

billion via OMOs this week as it skipped open market operations today and each

of the first three trading days of the week. The net drain is the highest weekly

drain in 10 months, compared with a net drain of CNY40 billion last week. On

Wednesday, the PBOC injected CNY188 billion in one-year Medium-term Lending

Facility (MLFs) loans at an unchanged interest rate of 3.2%. The operation did

not add or drain liquidity, as a total of CNY188 billion in MLF loans matured

Wednesday. An additional CNY187 billion in MLF loans will mature on Dec. 16. 

     DATA: China's foreign-exchange reserves increased for the 10th straight

month in November, due largely to a positive valuation effect caused by the weak

performance of the U.S dollar during the month. Foreign-exchange reserves

increased $10.06 billion during the month to $3.119 trillion, the biggest gain

since last October and significantly higher than the $703 million rise in

October, according to data from the People's Bank of China. "Major non-dollar

currencies appreciated, which resulted in changes of relevant assets prices,

which was the main reason for the increase" in reserves, the State

Administration of Foreign Exchange (SAFE) explained in a statement Thursday.

     DATA: Some 2.46 million passenger cars were sold in November, up 10% from

October and 3.6% higher than a year ago, the China Passenger Car Association

said in a report Friday. The stronger sales reflect relatively strong purchasing

power at the end of the year, the report said. New energy vehicle sales gained

8% on a monthly basis in November to 70,000, the 10th monthly rise this year.

The association said sales in December may not be strong as the same period last

year because the 2.5% tax discount for cars with small-engines available this

year is not as attractive as was the 5% discount available last year. The

association predicted sales for the whole year would rise 2% this year and 4%

next year.

     RATES: Money market rates edged up on Friday. The seven-day repo average

was last at 2.8099%, up from Thursday's average of 2.8051%. The overnight repo

average was at 2.5918% compared with Thursday's 2.5682%.

     RATES: The Ministry of Finance sold CNY15 billion in 91-day treasury bills

at a yield of 3.9684% in an auction on Friday. The yield was slightly higher

than the 3.9498% for bills with the same maturity in the secondary market on

Thursday.

     RATES: The Ministry of Finance sold CNY10 billion in 182-day treasury bills

at a yield of 3.9795% in an auction on Friday. The yield was higher than the

3.8321% for bills with the same maturity in the secondary market on Thursday.

     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 6.6166 against the U.S.

unit, dropping 0.02% compared with the official closing price of 6.6155 on

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

the U.S. dollar at 6.6218 Friday, modestly weaker than Thursday's 6.6195. The

PBOC has set the fixing weaker for 10 consecutive trading days, with today's

fixing the weakest since Nov. 22.

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

3.8988%, up from the previous close of 3.8800%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the agriculture sector. The benchmark

Shanghai Composite Index closed up 0.55% at 3,289.99. Hong Kong's Hang Seng

Index was 1.29% higher at 28,669.33. 

     FROM THE PRESS: Chinese regulators are trying to guide financial

institutions into stable and sustainable business areas and away from their

previous models that overvalued growth, the Financial News, a newspaper managed

by the People's Bank of China, said Friday. Cao Yu, vice chairman of China

Banking Regulatory Commission (CBRC), said city commercial banks need to decide

what types of businesses they want to be in, reflecting regulator's push to

prevent potential financial risks and promote sustainable development models,

the newspaper said. The market and society are increasingly paying attention to

optimizing economic structures and enhancing asset quality. (Financial News)

     Financial trusts reported decent growth in their assets in the third

quarter, with property market financing exceeding 10% of assets for the first

time in three years, the 21th Century Business Herald reported Friday. Financial

trusts' assets reached CNY24.41 trillion at the end of the third quarter,

CNY1.27 trillion more than at the end of second quarter, a 5.47% quarterly

growth rate, according to a report released by China Trustee Association on

Thursday. In the first nine months of the year, financial trusts' investments in

the property sector grew 1% to CNY2.07 trillion, or 10.01% of their total

investments at the end of September, the newspaper said. The government campaign

to tighten funding channels for property developers has motivated property

companies to turn to financial trusts. The newspaper said property companies

issued only 38 bonds in the first half of this year, accounting for less than

0.5% of their total financing. Development of the rental housing market is

providing new opportunities for financial trusts, with their investments focused

on real estate investment trusts (REITS) and rental property asset

securitization. (21th Century Business Herald)

     Chinese money supply is expected to remain tightly balanced, but the market

should not be pessimistic about the liquidity outlook as the period of greatest

interest rate fluctuation has passed, China Securities Journal reported Friday.

The liquidity injection by the People's Bank of China (PBOC) on Wednesday via

its Medium-term Lending Facility (MLF) shows the central bank will provide

sufficient liquidity to ensure money supply does not experience large

fluctuations at the end of the year. There will be a clear imbalance of

liquidity supply and demand in mid-December, the newspaper said, citing

unidentified experts predicting the central bank would continue injections via

its MLF to stabilize the market. The supply of money entering the new year will

not be a problem even if the PBOC drains funds because fiscal expenditures will

increase in the second half of December. (China Securities Journal)

     Banks in Xiamen city in Fujian Province cancelled CNY105 million of

consumer loans and "operational loans" -- loans for operational equipment

updates or office renovation -- which were used illegally to fund home

purchases, Caixin reported Friday. Xiamen banks are now checking how their

clients use consumption loans under orders from the local banking regulator, the

magazine said. Zhang Xintan, chairman of the Xiamen Banking Regulatory

Commission, said the agency is requiring banks to build systems to clamp down on

credit illegally transferred to the property sector and has already punished

four banks that allowed consumer loans to be used for property financing. Some

Chinese banks have already started to ask consumer loan customers to provide

receipts to prove they did not use their loans for home purchases, but other

banks are helping clients find receipts to justify the loans. (Caixin)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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