MNI China Daily Summary: Monday, February 12

     TOP NEWS: China's currency surged to the highest level in almost 18 months

on a trade-weighted basis against the currencies of its major trading partners,

according to weekly data released Monday by the People's Bank of China. The

CFETS Weekly RMB Index, which measures the yuan relative to a basket of 24

currencies, gained 0.66% last week from a week ago to 96.92 - the highest level

since June 3, 2016, when the trade-weighted index stood at 97.

     LIQUIDITY: The PBOC skipped its Open Market Operations (OMO) Monday,

stating on its website that the liquidity in the banking system is at a

"moderate" level after absorbing the impact of cash withdrawals. Today was the

14th consecutive trading day that the central bank has refrained from conducting

OMO. Liquidity conditions remain unchanged as no reverse repo matures today. No

reverse repos will mature this week. The benchmark 7-day deposit repo average

fell to 2.8125% today from 2.8456% on Sunday (Feb 4 working day ahead holidays):

Wind Information.

     RATES: Interbank market rates diverged after PBOC skipped open-market

operations, which resulted in unchanged liquidity conditions. The 7-day repo

average was last at 2.8679%, higher than 2.8456% Friday. The overnight repo

average 2.5629%, down from 2.5988% yesterday.

     YUAN: The Chinese yuan strengthened to 6.2998 against the U.S. dollar from

Friday's 6.3004 closing, following today's stronger fixing. PBOC set the yuan

central parity rate vs the U.S. dollar at 6.3001 on Monday, stronger than

Friday's 6.3194.

     BONDS: Yield on 10-year China government bonds last traded 3.8700%, up from

3.8850% close Friday.

     STOCK: The Shanghai Composite Index closed up 0.78% to 3154.13, while Hong

Kong's Hang Seng Index was last at 29,700.38, up 0.65%.

     FROM THE PRESS: China's foreign exchange agency (SAFE) will lift some

restrictions on Qualified Foreign Institutional Investors (QFII) and provide

hedge tools to qualified institutions in a bid to facilitate capital flows, said

Guo Song, director-general of SAFE's capital account management department, over

the weekend in China Forex, a journal run by SAFE. The country will clarify the

forex management relevant to Panda bonds and further improve the convertibility

of capital accounts, Guo noted. 

     The People's Bank of China should further coordinate macro-prudent

regulations and controls on operations of market players to stem frequent

financial issues, wrote Xu Zhong, director of the PBOC Research Bureau, in an

article published on the Finance 40 Forum website on Sunday. The regulatory

arbitrage, messy off-balance-sheet transactions and illegal fund-raising in

recent years indicate the contradiction between separated financial supervision

and mixed operations, Xu said. 

     The authorities should stabilize market expectations when the ongoing

deleveraging campaign goes deeper and more complicated, Economic Information

Daily reported on their front page on Monday. Corporate deleveraging needs a

benign environment considering firms in debt rely heavily on funding and

relevant guarantees, the report argued. Negative market expectations could

trigger panic in market players and heighten volatility, the report warned. 

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]