MNI China Daily Summary: Friday, January 19

     TOP NEWS: The yuan may trade as strong as 6.2 against the U.S. dollar in

the first half of 2018 after possibly hitting 6.4 in the near term, the Shanghai

Securities Journal reported on Friday, citing Li Liuyang, chief FX analyst at

the financial market department of China Merchants Bank. 

- The yuan closed at 6.4244 on Thursday, according to official data. 

- Chinese regulators are more tolerant on yuan's gain, the report said. 

- Benchmark on the yuan should be gauged by the basket of currencies and not

just movement against the dollar. If the currency basket is stable, then the

yuan's gain against the dollar may be deemed reasonable: Li. 

***TAKEAWAY: The yuan may further gain against the U.S. dollar, and market

participants expect regulators to refrain from intervening.

     LIQUIDITY: PBOC injected CNY130 billion in 7-day reverse repos, CNY90

billion in 14-day reverse repos, and CNY10 billion in 63-day reverse repos in

Open Market Operation (OMO) on Friday.

- Net CNY80 billion injection after CNY150 billion reverse repos mature. 

- Total net CNY590 billion injection for the week.

- CFETS-ICAP money-market sentiment index ended at 48 on Thursday, down from 58

on Wednesday's close. 

     RATES: Money market rates were higher after the PBOC injected a net of

CNY80 billion via its open-market operations. 

- 7-day repo average was last at 2.9186%, up from Thursday's average of 2.9083%.

- The overnight repo average was at 2.8604% compared with Thursday's 2.7814%.

     YUAN: The yuan gained against the U.S. dollar after the People's Bank of

China set a stronger daily fixing. 

- The yuan was last at 6.4008 against the greenback, rising 0.38% compared with

the official closing price of 6.4255 yesterday.

- PBOC set the yuan central parity rate vs U.S. dollar at 6.4169 on Friday,

stronger than Thursday's 6.4401. 

- PBOC has set the fixing stronger for four trading days out of five this week,

leading to a total 1.18% gain in the fixing. 

- Today's fixing marks the highest since Dec 9, 2015.

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

3.9600%, down from the previous close of 3.9700%, according to Wind.

     Stocks rose in Shanghai, led by banks' rising investors optimism for the

sector due to their higher asset quality amid tight regulations. Wuxi Bank led

the gains. The benchmark Shanghai Composite Index closed up 0.38% at 3,487.86.

Hong Kong's Hang Seng Index almost unchanged, 0.01% higher at 32,126.16.

     DATA: China recorded annualised GDP growth of 6.8% in the fourth quarter

and an annual growth rate of 6.9% in 2017, according to data released late

Thursday by the National Bureau of Statistics (NBS). However, although Q4

slightly exceeding the market expectations of 6.7% growth, as seen in the MNI

survey, historically low retail sales growth in December raised concerns over

weaker domestic demand.

     FROM THE PRESS: China's GDP may slow to 6.7% in 2018 from 6.9% in 2017 as

fixed-asset investments cool, the Economic Information Daily reported, citing

forecasts by the government-owned China Academy of Social Sciences. 

- Consumption, investments and net exports may contribute to 4.5, 2.0 and 0.2

percentage points of the 6.7% growth respectively 

- FAI may grow by 6.4%, 0.8 percentage point lower than in 2017; CPI 1.9% and

PPI 4.2%.

     Insurance companies must be prevented from illegally funding projects for

local governments, China's finance ministry and insurance regulator said in a

joint statement late Thursday. 

     - Local governments should examine their debt structures, and control and

tackle risks regarding existing investments with insurance companies, while

insurance companies should fully assess the ability of local government

financing vehicles (LGFV) to repay debt.

***TAKEAWAY: Local government debt is a key focus for China. The rapid growth of

insurance companies is drawing more regulatory scrutiny.

     Active mediation efforts are better for achieving the denuclearization of

the Korean peninsula than further sanctions, People's Daily commented on Friday.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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