MNI China Daily Summary: Friday, October 20

     TOPS NEWS: Reform of China's foreign-exchange formation mechanism is not

the focus of the Chinese government's reform efforts at the moment and an

expansion of the yuan's daily fluctuation range is not an immediate priority,

People's Bank of China Governor Zhou Xiaochuan said Thursday at a news

conference of top Chinese financial regulators during the twice-a-decade

Communist Party Congress. The regulators stressed the need to control risks and

expressed China's determination to further open up its financial market.

     TOP NEWS: Chinese banks bought more foreign exchange from their clients in

September than they sold, providing fresh evidence of more capital inflows for

the month as the yuan exchange rate showed greater two-way movement and capital

outflow controls continued to have their intended effect. The State

Administration of Foreign Exchange said Thursday that Chinese banks bought a net

CNY21.8 billion from clients in September, compared with the net sale of CNY27.6

billion in August. It was the first time banks were net purchasers from clients

since June 2015.

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

net CNY60 billion via open-market operations. The seven-day repo average was

last at 2.8250%, down from Thursday's average of 2.8530%. The overnight repo

average was at 2.5482%, compared with Thursday's 2.5603%.

     YUAN: The yuan strengthened against the U.S. dollar Friday after the

People's Bank of China set a slightly stronger daily fixing. The yuan was last

at 6.6188 against the U.S. unit, rising 0.13% compared with the official closing

price of 6.6277 on Thursday. The People's Bank of China set the yuan central

parity rate against the U.S. dollar at 6.6092 Friday, slightly stronger than

Thursday's 6.6093. The PBOC set the fixing stronger for the first time after

three straight trading days of weaker fixings.

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

3.7175%, up from the previous close of 3.7125%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the road freight and cargo shipping

sectors. The benchmark Shanghai Composite Index closed up 0.25% at 3,378.65.

Hong Kong's Hang Seng Index was 1.08% higher at 28,462.49. 

     FROM THE PRESS: The yuan exchange rate is very likely to continue its

two-way fluctuation and, in general, remain stable, the China Securities Journal

reported Friday. The recent strengthening of the yuan against the dollar after

the National Day and Mid-autumn Festival holiday was due to China's

better-than-expected economic fundamentals, the dollar index's weakening, less

central bank intervention, improved international capital flows, and a reduction

of foreign currency demand domestically due to fewer Chinese citizens traveling

overseas, the newspaper said. Unidentified experts were cited as saying the

future status of the dollar would continue to be the main factor influencing the

dollar-yuan exchange rate. Given the U.S. economy is maintaining modest growth,

its tax reform is advancing, and the shrinking of the Fed balance-sheet has

officially started, the chance for the dollar to dip or rise significantly is

small, so the yuan will not experience a significant drop, the report said.

Strong economic growth, prudential and neutral monetary policy, a better

demand-supply balance of foreign exchange and less pressure from cross-border

capital flows will also contribute to a stable yuan, the newspaper said. (China

Securities Journal)

     People's Bank of China Governor Zhou Xiaochuan said Thursday at a

discussion of major financial regulators during the Communist Party Congress

that he would retire "soon" from his current position, according to the South

China Morning Post. The newspaper said Jiang Chaoliang, party secretary of Hubei

province and vice chairman of China Development Bank, or Guo Shuqing, chairman

of the China Bank Regulatory Commission, are each seen as possible successors.

(South China Morning Post)

     The support of the Chinese banking sector is of such importance to China's

"going abroad" strategy that Chinese President Xi Jinping stressed it during his

speech at the opening ceremony of the 19th Communist Party Congress, the

Financial News, a newspaper supervised by the People's Bank of China, reported

Friday. Banks have performed important roles in China's "One Belt, One Road"

initiative and in free-trade zones, and banks' foreign operations as part of the

two programs have been very meaningful for China's economic restructuring,

Renmin University International Monetary Institute researcher Li Hong told the

newspaper. Chinese banks' substantial involvement in the two programs would

continue to be their main development direction, Li said. The report also noted

that Chinese banks have continued to expand overseas as Chinese companies

increasingly invest abroad. Bank branches in foreign countries have increased

rapidly, their assets have jumped and net profits have increased significantly.

For example, Bank of China has invested more than $437.2 billion in 460 projects

in countries involved in the Belt & Road initiative. (Financial News)

     Shanghai City Party Secretary Han Zheng said Shanghai is making plans to

establish a "free trade port," as mentioned by Chinese President Xi Jinping in

his opening speech on Wednesday to the 19th Communist Party Congress, China

Business News reported late Thursday. Han said the plan is in its initial stage,

and that the final proposal needs to be approved by the central government. He

also noted that the financial reform and development of Shanghai would come

under government risk-control guidelines. (China Business News)

     Chinese local governments have issued CNY3.67 trillion in bonds so far this

year, the China Securities Journal reported Friday, based on data from Wind

Information. As predicted by some financial institutions, full-year local bond

issuance is likely to reach CNY4.8 trillion to CNY4.9 trillion, meaning another

CNY1.2 trillion will be issued in the remainder of the year. As the central

government has taken new measures and issued new policies to control local

government indebtedness, the liquidity of local government debt has increased,

the newspaper said. (China Securities Journal)

--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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