MNI China Daily Summary: Monday, January 15

     TOPS NEWS: Reports hitting the wires that the Bundesbank will include the

yuan in currency reserves. This move follows a 19% rise since January 2016 in

EUR/CNY. MNI sources note that this could be the first signal that officials are

worried by the EUR/CNY rise, and this could be a mechanism that will allow some

intervention in the currency in order to cap the fx pair. 

     MNI EXCLUSIVE: Barely a week into the new year, signs are emerging that the

desire of China's local authorities to gain revenues from home sales is

overriding their commitment to toeing the official line of slowing speculative

property investment, Market News analysis suggests. A growing number of Chinese

cities are now tweaking their curbs on the property market, running at odds with

the central government's intent to rein in what some see as bubbles that can

lead to a wider-scale financial crisis.

     POLICY: China needs to remove restrictions on trade and investment, despite

its frequently voiced support for free trade and globalization, David Lipton,

deputy managing director of the International Monetary Fund, said on Monday in

Hong Kong. China should also protect intellectual property rights and reduce

measures favoring state companies, Lipton said. China's debt to some developing

countries may not be fully repaid, so it should create stronger framework and

debt resolution to address these issues, Lipton said.

     DATA: Data over the weekend showed China credit growth and money supply

both slowed sharply in December, impacted by quota restrictions and regulation

demands. However, credit growth is expected to pick up again in January. Weaker

non-bank financial institution deposits are the main contributing reason to the

fall in M2 growth, reflecting banks cutting interbank investment to meet

regulator requirements, including macro prudential assessments (MPA), liquidity

coverage ratio and more. Weaker loan growth also contributed to the fall of M2

growth, as less money flowed into the system from loan issuance reflective of

the restrictions of quotas, rather than weaker funding demands. Credit growth

and money supply will both likely pick up in January, as restraining factors

will disappear. - Chinese officials on the wires now saying that there has been

a relatively big drop in banking system liquidity. Comes as the PBOC resumes

OMO's, after the PBOC refrained from OMO's for 13 consecutive days and interbank

funding rates dropped back from 2017 highs into New Year. Liquidity has been hit

by tax payments and companies setting aside provisions for Lunar New Year.

     RATES: Money market rates were lower on Monday after the PBOC injected a

net of CNY50 billion via its open-market operations. The central bank also

injected CNY398 billion in its one-year Medium-term Lending Facilities (MLF)

loans, resulting in a net injection of CNY215.5 in MLF loans on Monday. The

seven-day repo average was last at 2.8446%, down from Friday's average of

2.9043%. The overnight repo average was at 2.7924% compared with Friday's

2.8355%.

     YUAN: The yuan fell against the U.S. dollar Friday after the People's Bank

of China set a weaker daily fixing. The yuan was last at 6.4350 against the U.S.

unit, rising 0.49% compared with the official closing price of 6.4680 on Friday.

The PBOC set the yuan central parity rate against the U.S. dollar at 6.4574 on

Monday, stronger than Friday's 6.4932.It was the strongest since May 3. It was

also the biggest daily gain since Oct. 11.

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

3.9600%, up from the previous close of 3.9350%, according to Wind, a financial

data provider.

     STOCKS: Stocks dipped in Shanghai, led lower by telecommunications and coal

mining shares. The benchmark Shanghai Composite Index closed down 0.54% at

3,410.49. Hong Kong's Hang Seng Index was down 0.13% at 31,370.15.

     FROM THE PRESS: China should further widen the global use of the yuan,

Financial News reported, citing Yin Yong, a deputy governor at the People's Bank

of China, who spoke last week in a forum. The yuan's role is underrepresented

globally given China's economic influence, it said. 'The One Belt One Road'

initiative also presents an opportunity for yuan internationalization, the

newspaper said.

     China will continue with a proactive fiscal policy, optimize the structure

for fiscal expenditures, ensure support for key sectors and projects, and

strengthen supervision on local government debt, Shanghai Securities Journal

said in a front-page analysis report, citing the Ministry of Finance. China's

fiscal deficit is expected to be kept around 3% this year with tight money

supply and a neutral monetary policy, the journal cited economists as saying.

China's current proactive fiscal policy will steer away from boosting credit

demand and instead focus on supply-side structural reform, such as ensuring

support for key sectors and projects promoted by the government, it said.

     China will further crack down on illicit practices in the banking industry

this year, the China Banking Regulatory Commission said on its website on

Saturday. Regulators will strictly forbid activities that may harm the economy,

such as those against rules on controlling credit and the property sector, CBRC

said. They will also further regulate shadow banking and cross-market financial

products, including negotiable certificates of deposit, wealth management

products, off-balance-sheet businesses, the commission said.

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

--MNI London Bureau; tel: +44 203-586-2229; email: nick.shamim@marketnews.com

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