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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
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.
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.
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)
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