MNI China Daily Summary: Friday, September 1

     TOPS NEWS: China's central bank announced Thursday it will prohibit the

issuance of long-term negotiable certificates of deposit (NCDs) to keep excess

liquidity from circulating in the financial system. Starting Sept. 1, NCDs, a

form of interbank lending, cannot carry terms longer than one year, the People's

Bank of China said on its website. Previously, the instruments could be issued

for up to two or three years, it said. Long-term NCDs previously issued will be

allowed to expire, it said. The move will primarily affect smaller banks, who

rely on NCDs to generate operating funds. 

     TOP NEWS: The Chinese Communist Party's top leadership proposed to hold its

19th Party Congress starting Oct. 18, the official Xinhua News Agency reported

on Thursday, citing a Politburo meeting on Thursday chaired by President Xi

Jinping. The five-yearly congress will select new members of the party's central

committee and central disciplinary committee, Xinhua said. President Xi is

expected to win a second five-year term. 

     TOP NEWS: Operating conditions in China's manufacturing sector improved in

August, led by the strongest rise in new business in over three years and a

healthy gain in new export sales, according to the latest Caixin Manufacturing

Purchasing Managers' Index (PMI) released Friday. The headline manufacturing PMI

rose to 51.6 in August from 51.1 in July and was also well above the 50.0

reading last July, according to data compiled by IHS Markit for Caixin. The

index has risen three consecutive months, with the August reading the strongest

since 51.7 in February.

     RATES: Money market rates were lower on Friday even though the PBOC drained

a net of CNY50 billion via its open-market operations. The seven-day repo

average was last at 2.8823%, down from Thursday's average of 2.9322%. The

overnight repo average was at 2.9182% compared with Thursday's 2.9622%.

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

People's Bank of China set a stronger daily fixing. The yuan was last at 6.5840

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

6.5969 on Thursday. The People's Bank of China set the yuan central parity rate

against the U.S. dollar at 6.5909 Friday, stronger than Thursday's 6.6010. The

PBOC has set the fixing stronger for all five trading days this week, and

today's fixing marks the highest since June 24 last year.

     YUAN: The latest Renminbi Index from the China Foreign Exchange Trade

System (CFETS), which measures the yuan against a basket of currencies from 24

major trading partners, rose 1.76% in August to 94.38, compared with a 0.58%

fall last month, CFETS said Friday. The Renminbi Indexes measured against the

Bank for International Settlements' currency basket and the IMF's Special

Drawing Rights currency basket dropped 1.61% and 1.64%, respectively, to 95.12

and 95.29, CFETS noted. The yuan rose 1.96% against the U.S. dollar in August,

the largest appreciation since July 2005 when it jumped 2.07%, according to

calculations by Market News International based data on the official yuan

closing price on CFETS.

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

3.6057%, up from the previous close of 3.6003%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, leading higher by the coal mining and non-ferrous

metal mining sectors. The benchmark Shanghai Composite Index close up 0.19% at

3,367.12. Hong Kong's Hang Seng Index was 0.04% lower at 27,960.37. 

     FROM THE PRESS: The State-owned Assets Supervision and Administration

Commission (SASAC) said some 300 zombie enterprises would be eliminated or

integrated into other companies by the end of this year, the Securities Daily

reported Friday. In 2016, the commission dealt with 171 zombie companies through

restructured or other measures and improved the performance of 249 companies

which had extremely poor performances. This led to an increase in efficiency

worth CNY51.2 billion, according to the newspaper, including the dismissal of

120,000 employees. The Commission's will continue to reduce the leverage of

state-owned enterprises and dispose zombie companies. (Securities Daily)

     Small to medium-sized financial institutions will face new pressure in

September when a large volume of negotiable certificates of deposit (NCDs) will

mature, especially after the PBOC's announcement on Thursday prohibiting

commercial banks from issuing NCDs with a maturity of more than a year, the

China Securities Journal reported Friday. As of Thursday, the volume of NCDs

that will mature in September stood at CNY2.3251 trillion, the largest amount

since December 2013, the newspaper said. Sun Binbin, analyst at Tianfeng

Securities, said the PBOC measure curbing long-term NCDs shows regulators will

continue to tighten rules on bank activities, so banks must make more changes to

their portfolio of assets to be able to pass the assessment of the appropriate

ratio of NCDs in their overall liabilities. Analysts quoted by the newspaper

noted that because small to medium-sized banks are most active in issuing NCDs,

they would be impacted the most by the PBOC change. (China Securities Journal)

     The turning point in the development of Chinese banks came earlier than

expected, and banks' businesses are healthier as a result, The Securities Times

said in a front-page commentary Friday. Based on first-half reports, Chinese

banks' performances were relatively good, especially the big state-owned banks.

Many indicators were better-than-expected, with net profit of the four big banks

rebounding and showing significant growth. China's robust economic development

has stimulated the financing needs of the real economy, and higher financing

costs caused by market liquidity fluctuations also contributed to the growth of

bank profits. Banks' initiatives to speed up their restructuring, as well as

their efforts to reduce costs, are also important reasons for their better

performance. (The Securities Times)

     Chinese listed property companies hold large amounts of cash at the moment,

with the largest firms holding more than CNY100 billion each, but this situation

is unlikely to continue due to funding issues later this year, the 21st Century

Business Herald reported Friday. Property sales in the first half were robust

and property companies added to their cash holdings by swapping short-term loans

for long-term credits, the newspaper said. But as the property sector continues

to cool and financing channels tighten further, property companies will face

obstacles in obtaining funding, which is likely to require them to spend some of

their cash. The peak time for the maturity of bonds they have issued is

approaching. In mid-2017, the ratio of long-term debt of 128 property companies

stood at 30.85% and was almost 70% for short- and medium-term debt, the

newspaper, citing data from Wind Information. An anonymous property professional

told the newspaper that the government is unlikely to loosen controls on the

property sector, so there's a low chance for an upward trend in the sector at

the end of the year. (21st Century Business Herald)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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