MNI China Daily Summary: Friday, February 23

     TOPS NEWS: The People's Bank of China (PBOC) injected CNY110 billion, CNY80

billion and CNY40 billion in 7-day, 28-day, and 63-day reverse repos,

respectively, carrying the same rates of 2.50%, 2.80% and 2.95% as recent open

market operations, according to a statement on the central bank's website. The

injections were intended to maintain stable liquidity, meet demand for cash to

pay taxes and deal with the maturities of certain instruments of the central

treasury cash management.

     LIQUIDITY: PBOC's OMO injected net CNY230 billion with no reverse repo

maturing today. CFETS-ICAP's money-market sentiment index closed at 45 on

Thursday, down from 35 on Feb 14, the last trading day before the Chinese New

Year holiday.

     RATES: Money market rates fell after PBOC's CNY230 billion injection.

- 7-day repo average was last at 2.8593%, down from yesterday's average of

2.8897%. 

- The overnight repo average was at 2.5644% compared with previous day's

2.6066%.

     YUAN: The yuan gained against the U.S. dollar after PBOC set a stronger

daily fixing. 

- The yuan was last at 6.3428 against the U.S. unit, rising 0.28% compared with

the official closing of 6.3605 yesterday 

- PBOC set the yuan central parity rate vs the dollar at 6.3482 on Friday,

stronger than Thursday's 6.3530.

     BONDS: Yield on benchmark 10-year China government Bond was last at

3.9375%, according to Wind Information.

     STOCKS: Stocks rose in Shanghai, led by coal miner shares due to high

demand and low inventory, with Lanyan Holdings surging 9.2%. The benchmark

Shanghai Composite Index closed 0.63% higher to 3,289.02. Hong Kong's Hang Seng

Index was 1.15% higher at 31,322.50.

     FROM THE CHINESE PRESS: 

     The yuan central parity this year may remain reasonably balanced, and to

maintain its two-way fluctuation status, said Economic Information Daily in a

front-page report. The yuan closed at 6.3605 on Thursday, the first trading day

after the Chinese New Year holiday, dipping 164 BP. This was mainly due to the

rebound of the dollar, the daily cited Fan Ruoying, researcher at Bank of China

Global Economy Research Institute. As the dollar remains weak, given China's

strong economy and stable policies, the yuan is expected to hold its ground, the

daily said.

     Monetary policy may remain "neutral and balanced" after the Chinese New

Year, reported Securities Times. While liquidity improved after PBOC injected

CNY350 billion yesterday, non-bank institutions still experience cash tightness,

Times said. In the short term, PBOC may continue to boost liquidity to stabilize

the money markets, especially after the expiry of temporary additions of cash

during the holidays, the newspaper said. The market expects the PBOC to continue

increasing money-market rates, as it endorsed such measures in its

fourth-quarter monetary policy report, Times said.

***COMMENT: PBOC is likely to increase rates this year, especially given the

expected rate hikes by the U.S. Federal Reserve.

     Chinese companies' debt-refinancing costs will increase signaled by

defaults by six corporate bonds so far this year, China Securities Journal

reported. Companies are squeezed by rising lending rates, restrictions over

alternative financing channels, and tighter regulations, the Journal said.

Widespread bond defaults won't happen given China's strong economy and growing

corporate profits, the newspaper said. 

***COMMENT: Financing will remain tight this year, especially for sectors under

tight regulatory scrutiny, such as the property industry. 

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

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

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