MNI China Daily Summary: Friday, May 11

     TOPS NEWS: Property sales in China may reach a record high this year as

stronger purchase incentives offered by developers offset curbs imposed by the

government, a leading real estate researcher told MNI in an exclusive interview.

Demand for housing, particularly in smaller cities, has been robust in the first

half, and shown no sign of abating, said Cui Ji, a property industry veteran

with more than a decade of experience. Developers are accelerating new offerings

to generate cash flow and meet funding shortages, Cui said.

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

Friday, stating "relatively high" level of liquidity can absorb the impact of

maturing reverse repos. This resulted in a net drain of CNY20 billion due to

maturity of the same amount of reverse repos. The PBOC has drained a total of

CNY140 billion via OMO this week. CFETS-ICAP's money-market sentiment index

closed at 39 on Thursday, up from 35 on Wednesday. 

     MONEY MARKET RATES: 7-day repo average rose to 2.6872% from 2.6797%

Thursday, after the PBOC drained CNY20 billion via OMO. The overnight repo

average decreased to 2.4536% from Thursday's 2.4830%.

     YUAN: The yuan rose to 6.3453 against the U.S. dollar from Thursday's

closing of 6.3613. Earlier today, the PBOC set the central parity rate higher

for the first time this week at 6.3524, up from Thursday's 6.3768. The gain

today offset the accumulated drop from the last four days.

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

3.6900%, unchanged from the previous close, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led lower by healthcare companies,

with SonoScape Medical Corp. up by the daily-limit 10%. The benchmark Shanghai

Composite Index closed 0.35% lower at 3,163.26. Hong Kong's Hang Seng Index

gained 1.01% to 31,119.71.

     FROM THE PRESS: China's recent reiteration of plans to increase domestic

demand does not mean macro-policies will be changed, Economic Information Daily

said in a commentary. Instead, the country aims to restructure its economy and

won't return to the old ways of stimulating the property market and

infrastructure investment, the newspaper said. The country's next steps will

involve increasing imports and consumption, improving the "effectiveness of

investment" in infrastructure in less-developed areas, as well as encouraging

private investment, the Daily said.

     "Structural" defaults of bonds will continue as China maintains a prudent

and neutral monetary policy and the deleveraging campaign advances, China

Securities Journal said. Frequent bond defaults by Chinese companies partly

resulted from supply-side reforms and deleveraging, which forced companies

having issues with overcapacity, inadequate management, weak cash flow or high

debt assume risks instead of being protected, the Journal said. Given China's

solid economic growth and most companies have sufficient cash flow, the risk of

bond defaults is controllable. Credit risk should not be the main theme in the

bond market this year, the Journal said.

     PBOC officials are discussing regulations on how the central bank may

manage payment companies' accounts that store customers' balances, 21st Century

Business Herald reported. The PBOC is to require payment companies to create a

new account managed by the PBOC and transfer customer provisions which were

stored in commercial banks to the new account, the Herald reported. The rules

would take effect first for some payment companies as a pilot program, the

newspaper said. ***Comments: The PBOC is trying to further clamp down on

financial risks and regulatory arbitrage of financial institutions. Customer

provisions, the prepaid money of customers for future services, are stored in

accounts set up in commercial banks and face the risk of being used by payment

companies or commercial banks for their own purposes.

--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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