MNI China Daily Summary: Friday, November 24

     TOP NEWS: China is reducing tariffs on a wide range of consumer goods by an

average of almost 10 percentage points, a move analysts say advances the

government's supply-side reform agenda while it opens domestic producers to more

competition. The Ministry of Finance announced Friday that China will start to

reduce tariffs on 187 categories of consumer goods starting on Dec. 1, with an

average tariff rate for these products down to 7.7% from 17.3%. The consumer

goods include food products, healthcare products, medicines, daily necessities,

garments, home appliances and entertainment products.

     POLICY: Fitch Ratings has maintained its negative outlook on China's

banking sector in 2018, saying it expects the government's continued regulatory

scrutiny to hurt profits. Fitch said in its report, "Fitch 2018 Outlook: China

Banks," that net interest margin pressures and declining profitability would

increasingly come into play for the sector, especially impacting smaller banks.

The Chinese government's crackdown on shadow-banking activities, as well as

tighter regulation in the interbank market, are expected to create drags on

profitability, although also improve transparency and rein in risks, Fitch said

in the report, which was released Friday.

     RATES: Money market rates were mixed on Friday after the PBOC injected a

net CNY20 billion via open-market operations. The seven-day repo average was

last at 2.9332%, up from Thursday's average of 2.9040%. The overnight repo

average was at 2.7974% compared with Thursday's 2.8122%.

     RATES: China's Ministry of Finance will issue CNY6.5 billion of government

bonds in Hong Kong on Nov. 30, the Hong Kong Monetary Authority said on its

website on Friday. A total of CNY4 billion in two-year bonds, CNY2 billion in

five-year bonds and CNY500 million in 10-year bonds will be made available for

competitive tender, the HKMA said. 

     YUAN: The yuan fell against the U.S. dollar Friday even though the People's

Bank of China set a much stronger daily fixing. The yuan was last at 6.5957

against the U.S. unit, dropping 0.20% compared with the official closing price

of 6.5823 on Thursday. The People's Bank of China set the yuan central parity

rate against the U.S. dollar at 6.5810 Friday, much stronger than Thursday's

6.6021. It was the third straight day the PBOC has set a stronger fixing, and it

was also the strongest fixing since Oct. 12.

     LIQUIDITY: The PBOC announced on its website Friday morning that it

injected CNY30 billion in liquidity via seven-day reverse repos, CNY10 billion

via 14-day reverse repos and CNY10 billion via 63-day reverse repos, with rates

unchanged at 2.45%, 2.60% and 2.90%, respectively. The PBOC did not give further

explanations about its operations this morning. This resulted in a net injection

of CNY20 billion for the day, as a total of CNY30 billion in reverse repos

matured on Friday. The PBOC has injected a net CNY150 billion via open-market

operations this week.

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

3.9500%, down from the previous close of 4.0000%, according to Wind, a financial

data provider. 

     STOCKS: Stocks rose, led higher by the natural gas sector and air freight

sector. The benchmark Shanghai Composite Index closed up 0.06% at 3,353.82. Hong

Kong's Hang Seng Index was 0.54% higher at 29,867.33. 

     FROM THE PRESS: The yuan strengthened against the dollar and the yuan

central parity rose 269 basis points Thursday, mainly due to the weakening of

the dollar, the Securities Daily reported Friday. The yuan may fluctuate around

a rate of 6.60 to the dollar. Analysts said that a drop in the dollar index

followed the release of the minutes of the U.S. central bank's Federal Open

Market Committee, showing that some committee members hesitated about the Fed

further increasing its benchmark interest rates. Also supporting the

strengthening of the yuan, recent fluctuation in the Chinese bond market have

caused the yield of 10-year treasuries to rise to more than 4%. Wang Qing, head

of the trade and finance center at the Suning Financial Research Institute, told

the newspaper that there is a high probability the People's Bank of China will

increase liquidity injections into the market. He added that in the short term,

it is unlikely the treasury yield will continue to be higher than 4%. The spread

between Chinese and U.S. treasury yields is expected to recover under the

central bank's injections, Huang said. (Securities Daily)

     Regulators have clamped down on finance technology (fintech) companies,

with payday loans as a focus, Huang Zheng, head of China Finance Technology

Innovation Research Institute, wrote in an article published Friday in the

Financial News, a newspaper of the People's Bank of China. Financial regulators

have extended a risk prevention campaign because of unsolved problems in the

fintech sector. As the media has reported, the Chinese government on Tuesday did

issue a document calling for a halt to the creation of new companies providing

payday loans. The tightening this time could be regarded as increased

coordination between local and central financial regulators, as the National

Financial Work Conference and the 19th Communist Party Congress emphasized,

Huang wrote. Some local governments have issued too many licenses to payday loan

companies, and the central government has ordered them to review the companies

and strengthen supervision. (Financial News)

     The issuance of corporate bonds decreased by around 60% in valuation in the

first 10 months of this year, although new bond categories experienced high

growth, the Securities Daily reported Friday. Through October, 1,074 corporate

bonds were issued, raising CNY1,070.73 billion, down 58.87% from a year ago,

Pengyuan Credit Rating data show. In the same period, 22 green corporate bonds

were issued, with a volume of CNY22.76 billion. The issuance of corporate bonds

of innovative companies rose quickly, totaling 16, worth CNY3.14 billion, the

newspaper said, without giving any base number or growth rate. The rapid growth

in green company and innovative company bonds could be attributed to the Chinese

government's encouraging development of green finance and small companies, and

vowing to expand financing channels for them. Shi Xiaoshan, an analyst at

Pengyuan, said that with risk controls continuing in the bond sector and a lack

of momentum in corporate bonds, yields would continue to diverge. (Securities

Daily)

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

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

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