MNI China Daily Summary: Friday, March 23

     TOP NEWS: China has prepared $3 billion of tariffs on U.S. imports in

answer to the Donald Trump administration's measures to charge additional

tariffs on Chinese steel and aluminum, the Ministry of Commerce said on its

website Friday. China will first raise additional 15% tariffs on 120 products,

worth $977 million, including fruits, denatured ethyl alcohol and seamless steel

pipe, if the the U.S. fails to compensate for China's losses, MOFCOM said. China

will further decide whether to add 25% tariffs on another 8 products worth

$1.992 billion, including pork-related products and recycled aluminum, MOFCOM

said.

     TOP NEWS: China isn't afraid of a trade war even if it doesn't want one and

it will fight to the end if the U.S. insists, China's embassy in the U.S. said

Friday in a statement on its website. The U.S.'s 301 investigation and its final

result is protectionist, which China resolutely opposes, the statement said.

China is confident and capable of meeting the challenges, the embassy said.

     LIQUIDITY: The PBOC skipped OMO on Friday, stating that the increasing

fiscal expenditure towards month-end can absorb the impact of maturing reverse

repos, and to keep liquidity condition at a "reasonable and stable" level. This

resulted in a net drain of CNY90 billion after maturity of same amount of

reverse repos. PBOC drained total CNY320 billion this week - CFETS-ICAP's

money-market sentiment index closed at 36 on Thursday, unchanged from Wednesday.

     MONEY MARKET RATES: The average 7-day repo rate fell to 2.6989% from

2.7603% on Thursday, after the PBOC drained CNY90 billion via its open-market

operations. The overnight repo average rose to 2.5330% from Thursday's 2.5134%.

     RATES: The Ministry of Finance sold CNY10 billion 3-month China Government

Bond at a yield of 2.9080% via auction on Friday. The yield was much lower than

the 3.0613% for bonds with the same maturity sold in the secondary market

Thursday.

     YUAN: The yuan fell against the U.S. dollar after the PBOC set a weaker

daily fixing. The yuan slid 0.09% to 6.3234 against the U.S. unit, compared with

the official closing price of 6.3212 yesterday. The People's Bank of China set

the yuan central parity rate vs the U.S. dollar at 6.3272 on Friday, weaker than

Thursday's 6.3167. The central bank has set the fixing weaker for two trading

days out of five this week.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.7100%, down from the previous close of 3.7450%, according to Wind Information.

     STOCKS: Shares slumped in Shanghai after the China-U.S. trade conflicts

escalated, led lower by telecommunication companies which could be targets for

U.S. tariff increases, with Hangzhou Freely Comms down by the daily-limit 10%.

The benchmark Shanghai Composite Index closed 3.39% lower at 3,152.76, the

lowest level in a month. Hong Kong's Hang Seng Index dropped 2.99% to 30,142.25.

     FROM THE PRESS: The U.S. Fed's rate hike and the PBOC's OMO rate hike have

had no major short-term impact on China's stock and property markets, Securities

Daily reported. Should China's money market or benchmark interest rates rise

further in step with a possible faster pace of more hikes by the U.S. Fed, the

stock and property sectors will face more headwinds, the Daily reported citing

analysts. A possible benchmark rate hike hurts the property market by adding

financing costs for developers and reducing home buyers' desires to purchase,

the Daily cited analysts as saying.

     The yuan may maintain overall stability and trade in both directions as the

U.S. dollar fluctuates, China Securities Journal said. The dollar weakened even

after the Fed hike because investors judged it insufficient to prop up the

sliding dollar. The yuan may remain stable given balanced supply and demand and

China's resilient economy.

     The PBOC's lower-than-expected money-market rate hike led to drops in

yields on China Government Bonds, 21st Century Business Herald reported. Bond

market will face more uncertainties after the end of the National People's

Congress, tightened interbank liquidity at month-end and more issuance of local

government bonds, the newspaper said.

--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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