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TOP NEWS: The expansion in the Chinese services sector accelerated modestly
in October but remained weak by historical standards, as input and output prices
grew at a moderate pace, according to the latest survey of purchasing managers
jointly released by Caixin magazine and Markit. The headline index rose to 51.2
in October, up from the 21-month low of 50.6 in September, but the reading was
still the second lowest this year.
LIQUIDITY: The People's Bank of China injected CNY404 billion in one-year
Medium-term Lending Facility (MLF) loans Friday, with the rate unchanged at
3.20%, the PBOC said on its official website. The PBOC also skipped open-market
operations for the second day in a row. This resulted in a net injection of
CNY107 billion for the day, as a total of CNY90 billion in reverse repos and
CNY207 billion in MLF loans matured on Friday. A total of CNY396 billion in MLF
loans are scheduled to mature in November. The PBOC injected a net CNY87 billion
in liquidity this week, including reverse repos and MLFs.
RATES: The Ministry of Finance sold CNY15 billion in 91-day treasury bills
at a yield of 3.5132% in an auction on Friday. The yield was higher than the
3.5074% for bonds with the same maturity in the secondary market on Thursday.
RATES: Money market rates fell. The seven-day repo average was last at
2.7376%, lower than Thursday's average of 2.8437%. The overnight repo average
was at 2.5309%, lower than Thursday's 2.5626%.
YUAN: The yuan fell against the U.S. dollar even though the People's Bank
of China set a stronger daily fixing. The yuan was last at 6.6217 against the
U.S. unit, compared with the official closing price of 6.6063 on Thursday. The
PBOC set the yuan central parity rate against the U.S. dollar at 6.6072,
stronger than Thursday's 6.6196. It was the fourth straight day the PBOC has set
a stronger fixing.
BONDS: The yield on benchmark 10-year China government bonds was last at
3.8800%, up from the previous close of 3.8725%, according to Wind, a financial
STOCKS: Stocks were down, led lower by the coal sector. The benchmark
Shanghai Composite Index closed down 0.34% at 3,371.74. Hong Kong's Hang Seng
Index was 0.28% higher at 28,599.14.
FROM THE PRESS: China will become a main investment destination as the
global economy enters a new growth cycle, Wang Yu, vice director of the research
bureau of the People' s Bank of China, said Friday at a financial forum in
Hangzhou. Over the next two years, the U.S. Federal Reserve is expected to
increase interest rates twice or three times each year, so as of the end of
2019, the benchmark interest rate of the Fed could reach as high as 3%, Wang
noted. As a result, Wang predicted, the U.S. dollar index will continue to rise
while commodity prices will linger at a relatively low level.
It is too early to say the current improvement in bank asset quality has
become a trend, although banks have actively shrunk their balance sheets under
stricter regulation, the Financial News, a journal run by the People's Bank of
China, reported Friday. Debt risks have been reduced, judging from the decrease
in debt defaults so far this year, the report said, adding that as of the end of
September, debt defaults totaled CNY23.68 billion, compared with CNY40.3 billion
for all of 2016. But economic downturn pressures are still large and credit
quality in some regions and sectors could plunge as cuts in overcapacity and new
environmental protection initiatives are implemented, the report warned.
Insufficient private investment and rising borrowing costs will put further
pressure on corporate debt burdens, the report warned. (Financial News)
The short-term volatility of the yuan exchange rate will not change its
internationalization trend, the People's Daily reported Friday. The Chinese
government mouthpiece was responding to Western media comments on the slowdown
of the currency's internationalization given data from the Society for Worldwide
Interbank Financial Telecommunication (SWIFT) showing that the yuan's share of
international payments is now smaller than it was two years ago. From a trade
and investment perspective, the drive for yuan internationalization has never
changed, the newspaper said. The process faces challenges, including maintaining
a stable yuan exchange rate, the current limited ability and relative high cost
of hedging yuan exchange rate risks, and limits at the moment on the amount of
assets priced in yuan, the report admitted. The use of the yuan in global
markets will increase in the long term as the Chinese economy continues to grow
and Chia's "One Belt, One Road" initiative is pushed forward, the report
stressed. (People's Daily)
New commercial bank loans are expected to decline significantly in October
due to further curbs on the property sector and because of seasonal factors, the
Securities Times reported Friday. Since September, authorities have banned the
use of consumer loans for property purchases, in addition to enhancing
punishments for property buyers who fund down payments in illegal ways. This
will contribute to a fall in short-term household loans in October, the report
predicted. Banks have largely used up their credit quotas due to the robust
expansion of new loans in the first nine months of this year, the report noted,
adding that as of the end of September, total new loans had reached CNY11.16
trillion, or some 88% of total new loans granted last year. (Securities Times)
China needs to enhance financial regulation to prevent financial risks from
causing major shocks to the economy, the Economic Information Daily said Friday
in a front-page commentary. The regulatory duty shouldered by the central bank
should be emphasized and a "double pillar" management framework combining
monetary policy and macro-prudential policy should be optimized, the commentary
argued. The drafting of appropriate financial laws needs to be accelerated and
corporate governance within financial institutions needs to be strengthened, the
commentary stressed. (Economic Information Daily)
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