MNI China Daily Summary: Monday, December 11

     TOP NEWS: Chinese government fiscal spending and revenue both dropped

November due lower spending and a decline in revenues at the local government

level, the Ministry of Finance reported Monday. Fiscal spending dipped 9.1% on a

year-on-year basis to CNY1.6566 trillion in November, with the decline

accelerating from the 8% drop recorded in October. The latest drop was led by a

11.6% y/y slowing of local government spending to CNY1.4077 trillion. Local

governments slowed their expenditures in November after the amount had grown

rapidly in the previous months, the ministry said. In contrast, central

government spending increased 8.7% to CNY248.9 billion.

     RATES: Money market rates were mixed. The seven-day repo average was last

at 2.8535%, higher than Friday's average of 2.8264%. The overnight repo average

was at 2.6883%, higher than Friday's 2.5879%.

     LIQUIDITY: The People's Bank of China injected CNY40 billion in seven-day

reverse repos and CNY40 billion in 28-day reverse repos via open-market

operations. This resulted in a net injection of CNY20 billion for the day, as a

total of CNY60 billion in reverse repos mature on Monday. Today is the first day

that the PBOC made a net injection of liquidity via its OMOs since Nov. 24. A

total of CNY480 billion in reverse repos will mature this week. In addition,

CNY187 billion in Medium-term Lending Facility (MLF) loans will mature on

Saturday.

     YUAN: The yuan was slightly stronger against the U.S. dollar after the

People's Bank of China set the fixing rate higher for the day. The yuan was last

at 6.6164 against the U.S. unit, compared with the official closing price of

6.6175 on Friday. The PBOC set the yuan central parity rate at 6.6152, higher

than Friday's 6.6218. Today's fixing was set stronger for the first time in two

weeks after being set weaker each of the previous 10 trading days.

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

3.9375%, higher than the previous close of 3.9150%.

     STOCKS: Mainland stocks rose, with the shares of computer companies leading

gains. The benchmark Shanghai Composite Index closed up 0.98% at 3,322.20. Hong

Kong's Hang Seng Index was 0.97% higher at 28,918.80.

     FROM THE PRESS: The China Banking Regulatory Commission will further

suppress the growth of interbank asset transactions while encouraging an

expansion of banks' lending businesses, the Financial News, the journal run by

the People's Bank of China, reported Monday. According to a draft released last

Wednesday by the CBRC to solicit public opinion, the supervision of banks'

liquidity situations will be strengthened. Small and medium-sized banks have

generated a large liquidity risk as half of their liabilities are funding raised

through wholesale interbank transactions, a risk worsened by high leverage

ratios and mismatched durations, the report said. The draft will set quotas for

interbank wholesale funding of different durations, which will restrain the

mismatches, the report noted. Long-term liabilities will increase as banks focus

on curbing short-term interbank transactions to meet regulatory requirements.

(Financial News)

     China needs to give up its pursuit of rapid economic growth so that it can

realize higher-quality development, the Economic Information Daily said Monday

in a front page commentary in response to the Politburo meeting held last

Friday. The meeting emphasized the need for the nation to build a long-term

effective mechanism for property market control and accelerate the reform of the

residential housing system. This means real estate market reforms will see a

breakthrough in 2018, particularly in terms of increasing housing supply,

developing rental housing, and pushing forward reforms of fiscal policy and the

household registration system, the commentary noted. Although the economy's

overall leverage ratio is declining, it remains high, particularly in the

household sector, the commentary warned. The property market bubbles in Tier 1,

Tier 2 and Tier 3 cities need to be further curbed, the commentary argued.

(Economic Information Daily)

     The profitability of Chinese banks is expected to improve next year due to

higher interest margins and lower credit costs, the Financial News, a journal

run by the People's Bank of China, reported Monday. Net profits of listed banks

are predicted to rise 6.61% year-on-year in 2018, compared with 4.3% growth this

year, the report said, quoting industry insiders. Money market rates will

continue to rise as liquidity is tightened further under pressure from financial

deleveraging and stricter regulation, so the interest margins of big banks will

increase further, the report noted. Credit costs will decline as non-performing

loans are resolved. Bank provisions are growing, providing support for managing

their NPLs, the report argued. But banks will also face bigger structural

adjustment challenges as additional operating risks are exposed next year.

(Financial News)

     The People's Bank of China's market interest rates have not yet fully

evolved because the economy is facing downturn pressure, inflation is still mild

and funding costs are rising, Lian Ping, chief economist with the Bank of

Communications said Saturday at a financial summit in Hainan Province. Economic

growth in 2018 is expected to be around 6.7%, as better exports offset lower

investment growth, with consumption stable, Lian predicted. It will be difficult

for the PBOC to tighten monetary policy further given gloomy market expectations

and the pressure on financial institutions to adapt to new regulations.

Nevertheless, the PBOC is likely to raise the interest rates on its liquidity

instruments next year to offset the effects of expected Federal Reserve's rate

hikes next year, Lian argued. (China Securities Journal)

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

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

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