MNI China Daily Summary: Monday, February 26

     TOP NEWS: The People's Bank of China announced Monday it would abolish 40

rules, across areas ranging from FX management to the interbank market, in a bid

to reform financial regulation and reduce the government's intervention in the

market. Rules to go include the interim regulation on managing foreign

investors' FX registration and a document listing requirements for banks

entering the interbank lending market.

     LIQUIDITY: The PBOC injected CNY100 billion, CNY30 billion and CNY20

billion in 7-day, 28-day, and 63-day reverse repos respectively, with rates

unchanged at 2.50%, 2.80% and 2.95%, the central bank said on its website on

Monday. According to the PBOC, this injection was aimed at maintaining

reasonably stable liquidity in the banking system, and as a means to counter the

effects of RRR for financial institutions. The injection came after the PBOC did

not conduct OMO on Saturday (a trading day) due to the Chinese New Year

holidays. It resulted in a net injection of CNY150 billion, with no reverse

repos maturing Monday. CFETS-ICAP's money-market sentiment index closed at 33 on

Saturday, down from 40 on Friday. 

     RATES: Money market rates diverged after PBOC injected a net of CNY150

billion via its open-market operations. The 7-day repo average was last at

2.8425%, down from Saturday's average of 2.8719%. The overnight repo average was

at 2.5543% compared with Saturday's 2.5095%.

     YUAN: The yuan gained against the U.S. dollar after the People's Bank of

China set a stronger daily fixing.  The yuan was last at 6.3137 against the U.S.

unit, rising 0.38% compared with the official closing price of 6.3380 Friday.

The PBOC set the yuan central parity rate vs the U.S. dollar at 6.3378 on

Monday, stronger than last Friday's 6.3482.

     YUAN: China's currency continue to dip for the second week on a

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

according to weekly data released on Monday by the PBOC. The CFETS Weekly RMB

Index, which measures the yuan relative to a basket of 24 currencies, dropped

0.33% last week from a week ago to 95.80 - the second biggest drop since

mid-November last year, when the trade-weighted index stood at 94.70. The

biggest drop since mid-November occurred on Feb 14, when it fell by 0.83%. As of

Feb 23, the RMB gauge has recorded a 1% gain year-to-date, up from 94.85 on Dec

29, according to MNI's calculations.

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

3.8500%, down from the previous close of 3.8750%, according to Wind.

     STOCKS: Stocks rose in Shanghai, led by coal gas shares, with Foshan Gas

Group Co Ltd led the gain. The benchmark Shanghai Composite Index closed up

1.23% at 3,329.57. Hong Kong's Hang Seng Index was 0.78% higher at 31,511.57.

     FROM THE PRESS: China's property control policies will be tightened in

Tier-3 and Tier-4 cities to curb overheating of the property market, reported

Economic Information Daily on Monday. The 70-city housing price data released on

Saturday shows it's likely that housing prices in key lower-tiered cities will

increase, as prices in lower-tiered cities slightly increased in January due to

less strict controls. Recently, Zibo City of Shandong Province and Datong City

of Shanxi Province issued new property policies, signalling the tightening of

controls in lower-tiered cities. 

     Some cities and provinces will be creating regulation to curb the misuse of

public-private partnerships, according to Securities Daily's report on Monday.

The city of Beijing, provinces such as as Jilin and Gansu, and Ningxia

Autonomous Region will create measures to regulate the operations of PPPs and

prevent local governments from borrowing under the guise of PPPs. Hunan Province

earlier this month announced a new policy to manage PPP projects through a

'negative list', which will list what local governments cannot do through PPP

projects - the first such policy of its kind. 

     To better reduce the size of China's zombie companies, more detailed

regulation needs to be created, reported the official People's Daily on Monday.

Local policymakers and financial institutions which deal with zombie companies'

debt are awaiting more detailed regulation. The government will let the market

decide how to dispose of companies that use too much energy and produce too much

pollution. It will also support companies that are in line with industries that

improve national security, as well as other sectors that the Chinese government

has vowed to develop.

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

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

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