MNI China Daily Summary: Friday, March 29

     EXCLUSIVE: China's benchmark deposit and lending rates will function as

anchors for its credit market for some time, even as the People's Bank of China

pledges to complete market-oriented interest rate reform, sources told MNI.

"While the trend is towards the removal of the benchmark interest rates, for now

the country isn't ready," a source familiar with the central bank's operations

said. Traditional rates are still the main guide for lenders when pricing loans

and deposits, and no effective market-oriented replacement is yet available, the

source said.

     POLICY: Stable policies and positive economic fundamentals are the main

factors to help companies tackle financing problems, particularly

cross-defaults, a former head of the State Administration of Foreign Exchange

told MNI. "Regulations and macro policies should be robust," to help resolve

current debt risks in the corporate sector, said Hu Xiaolian, who also served as

a deputy governor at the PBOC. Cross-defaults, when one bond default causes

wide-spread unease among lenders and investors, is helping drive financing

difficulties for companies, she said earlier this month. Hu, currently chair of

the Export-Import Bank of China, has cautioned over tighter cross-market credit

spreads, calling for more policy action to stop it.

     TRADE: China and the U.S. could reach a final agreement by the end of June,

Hu Xiaolian, the chairwoman of the Export-Import Bank of China, said at the Boao

Forum. A failure to reach a deal may weaken global trade, slow growth and

accelerate a world-wide recession, said Hu. 

     LIQUIDITY: The PBOC skipped open market operations for the eighth straight

trading day, leaving liquidity unchanged as no reverse repos matured, according

to Wind Information. Total liquidity in the banking system is at a relatively

high level, given increased fiscal spending at the end of the quarter, said the

PBOC. The PBOC has net drained a total of CNY110 billion this week, Wind

Information said.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) fell to 2.7000% from Thursday's close of 2.7329%, Wind

Information showed. The overnight repo average increased to 2.7200% from

Thursday's 2.0322%. 

     YUAN: The yuan strengthen to 6.7202 from Thursday's close of 6.7288. The

PBOC set the dollar-yuan central parity rate at 6.7335, compared with 6.7263 set

on Thursday.

     BONDS: The yield on 10-year China Government Bond was last at 3.0700%, up

from Thursday's close of 3.0600%, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index rose 3.20% to 3,090.76, the

largest daily gain in a month, fuelled by rallying broker, real estate, liquor

and IT shares. Hong Kong's Hang Seng Index increased 0.96% to 29,051.36.

     FROM THE PRESS: Reserve requirement ratio cuts remain the PBOC's preferred

policy tool and they could cut as soon as April with a further two cuts this

year, and it is expected to have a total of three cuts this year, said Xu Gao,

chief economist at China Everbright Securities Asset Management Ltd, the

Securities Daily reports. There is an important window for an RRR cut after the

release of Q1 GDP, the newspaper said.

     Industrial and Commercial Bank of China, one of the big four state-owned

banks, is planning to issue more than CNY80 billion of perpetual bonds to

supplement its Tier 1 capital, the Beijing News reported late Thursday. ICBC

added around CNY200 billion to its core capital last year through net profit

after dividends, but it is still not enough for the development of the bank,

said Gu Shu, head of ICBC, the paper reported.

     China's GDP growth is seen at 6.3% in Q2, and the annual GDP at 6.4%, given

the improvement in the domestic market and support policies, despite of external

uncertainties, a report by BOC Institute of International Finance says. This

will provide a suitable environment for the banking industry to promote

supply-side structural reform, the report added.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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

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