MNI China Daily Summary: Friday, May 4

     TOPS NEWS: Tighter liquidity conditions across money markets is the

standout feature from MNI's latest monthly China Interbank Survey, which gauged

the opinions of 19 traders from financial institutions operating in China's

interbank market, the economy's main source of financing. The latest survey,

conducted between April 23 to April 27, shows 73.7% of respondents believe

liquidity conditions have deteriorated, the highest percentage since November

2017. That's up from 10% in March and 68.4% in April last year. The percentage

hadn't previously been over 50 this year.

     DATA: China Caixin service PMI rose to 52.9 in April from 52.3 in March,

reflecting a faster growth of the service sector which the government is

campaigning to boost economic growth. 

     ANALYSIS: China's imports and exports may fall sharply in the second half

of the year, as uncertainties over a possible trade war with the U.S. may prompt

companies to move their orders up the schedule. A delegation of U.S. trade

officials, led by Treasury Secretary Steven Mnuchin, will hold trade

negotiations with China officials led by the Vice Premier Liu He on Thursday and

Friday. However, with no certainty trade tensions can be eased quickly, their

could be a near-term impact on both imports and exports. 

     LIQUIDITY: The PBOC injected CNY20 billion in 7-day reverse repos on

Friday, with the rate unchanged at 2.55%, the central bank said on its website.

This resulted in a net drain of CNY40 billion as a total of CNY60 billion

reverse repos matured today. The PBOC has drained a total of CNY70 billion by

its open market operations (OMO) this week. CFETS-ICAP's money-market sentiment

index closed at 35 on Thursday, down from 43 on Wednesday.

     MONEY MARKET RATES: The 7-day repo average dropped to 2.7047% from 2.8080%

on Thursday, after the PBOC drained CNY40 billion via OMO. The overnight repo

average declined to 2.5500% from Thursday's 2.6279%.

     YUAN: The yuan edged up against the U.S. dollar after the PBOC set a

stronger daily fixing. The yuan rose 0.01% to 6.3508 against the U.S. unit,

compared with the official closing price of 6.3532 yesterday. The PBOC set the

yuan central parity rate at 6.3521 Friday, much stronger than Thursday's 6.3732.

The central bank set the fixing stronger for the first time in five trading days

and today's gain recovered a third of the loss in the past four trading days.

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

3.6400%, down from the previous close of 3.6500%, according to Wind Information.

     STOCKS: Shares dropped in Shanghai led by computer companies after Huawei

Technologies Co. is reported to be investigated by the U.S. government, with

China National Software & Service, a client of Huawei, down by the 10% daily

limit. The benchmark Shanghai Composite Index declined 0.32% to 3,091.03. Hong

Kong's Hang Seng Index fell 1.1% to 29,980.55.

     FROM THE PRESS: Local governments are planning to expand domestic demand

and further liberalizing their economies to boost growth, Shanghai Securities

Journal reported. Investment is regarded as an important growth driver, and the

construction of large infrastructure projects is speeding up, the Journal

concluded. For example, Jiangsu province plans to invest CNY3.5 trillion in 240

projects, while Jilin province will invest CNY1.7 trillion in 2,184 projects,

the Journal said. Local governments speeding up their construction plans will

contribute to China's stable economic growth this year, the Journal said, citing

analyst Chen Yanli at Shanghai Securities.

     China Banking and Insurance Regulatory Commission is considering further

increasing credit support for microbusinesses, Economic Information Daily

reported, citing Wang Zhaoxing, deputy chairman of the commission. The

commission is coming up with a system to determine proper loan interest rates

for microbusinesses, Wang said. CBIRC's next step will be to place more

requirements on commercial banks to support the growth of microbusinesses. One

requirement will be to ensure that loans available to microbusinesses shall

expand at least as fast as that of their larger rivals, Wang noted.

     Shanghai will look to start the Shanghai-London stock connect this year, as

well as other measures aimed at opening up its financial sector, China

Securities Journal reported citing Li Jun, deputy director at the city's office

of finance service. Shanghai will lead Chinese cities in increasing foreign

ownership and expanding foreign companies' operation in China, Li was cited by

the newspaper as saying. The city will also facilitate the internationalization

of the yuan, Li said.

--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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