MNI China Daily Summary: Monday, January 22

     TOP NEWS: China can extend positive grown momentum into 2018, NDRC

spokesman Yan Pengcheng said at a press briefing on Monday.

- "Unbalanced and insufficient development" needs further attention to improve

China's economy and achieve sustainable growth. 

- China still supports outbound investment by qualified companies; will further

regulate outbound investment to ensure authenticity and legality: Yan 

- China's capacity reduction in 2017 exceeded its annual goal of 150 million

tonnes coal, 50 million tonnes steel, and 50 million kilowatts in coal-fired

electricity generation: Yan 

- China will control risks and scale of corporate bonds, tackle corporate bond

default risks; this will help curb local government debt: Yan 

****TAKEAWAY: High-quality growth is a goal for China; China's campaigns such as

capacity cutting and risk controls will continue.

     LIQUIDITY: The PBOC injected CNY60 billion in 7-day reverse repos, CNY40

billion in 14-day reverse repos, and CNY10 billion in 63-day reverse repos in

Open Market Operations (OMO).

- Net CNY20 billion injection after CNY90 billion reverse repos mature 

- A total of CNY820 billion in reverse repos will mature this week 

- A total of CNY107 billion in medium-term lending facility (MLF) loans will

mature on Wednesday, Jan. 24 

     RATES: Interbank market rates fell after the PBOC injected a net CNY20

billion by open market operations. 

- 7-day deposit repo average was last at 2.9125%, lower than 2.9225% Friday 

- Overnight deposit repo average at 2.7487%, lower than 2.8554% Friday.

     YUAN: The yuan weakened against the U.S. dollar even thought the People's

Bank of China set a stronger daily fixing. 

- The yuan was last at 6.4120 against the greenback, falling 0.12% from Friday's

official closing price of 6.4040.

- PBOC set the yuan central parity rate vs U.S. dollar at 6.4112, stronger than

Friday's 6.4469. 

- Today's fixing was the highest since Dec. 8, 2015.

     BONDS: Yield on 10-year China government bonds last traded 3.9600%, down

from 3.9750% at close on Friday: Wind Information.

     STOCK: Stocks rose in Shanghai, led by shares of appliances companies. The

benchmark Shanghai Composite Index closed up 0.39% at 3,501.36. Hong Kong's Hang

Seng Index rose 0.36% at 32,366.73.

     FROM THE PRESS: The Chengdu Branch of Shanghai Pudong Development Bank was

fined CNY462 last week by China's banking regulator for illegally loaning as

much as CNY77.5 billion to shell companies as cover-ups for its non-performing

loans, Shanghai Securities News reported over the weekend. Top management

associated with the scandal were fined and charged, as well as barred for life

from working in banking, while 195 lower-level executives were disciplined, it

said. Pudong Bank said in an exchange filing that the fine's impact is

immaterial to the bank's operations. 

***COMMENT: Some Chinese commercial banks, under regulatory pressure to reduce

high NPL ratios, lent without due diligence to SOEs. These loans increased the

risk of defaults and made it harder for private companies to obtain capital.

     China is clamping down on the use of local government funding vehicles

(LGFVs), the 21st Century Business Herald reported Monday. The central

government is enforcing debt swaps or separating LGFVs to independent companies

to reveal invisible debt held by local authorities. The process of regulating

LGFVs is slow and difficult given that it ties to the local economies and that

it gets implicit guarantee from local governments, it said. 

***COMMENT: LGFVS were was created to help local governments meet targets. Local

officials are pressured by evaluations from central government. Irregularities

presented by LGFVs therefore cannot be eliminated without overhauling the fiscal

structure. These on-again and off-again approaches will not resolve the issue.

     The debt ratios of SOEs and local governments need to be closely watched,

Li Yang, a researcher with the Chinese Academy of Social Science and advisor to

China's leadership, said in a forum at the Renmin University on Sunday. With

China experiencing slower growth, excess production capacity and a difficult

investment environment, rising leverage ratios, debt and non-performing loans

are posing more risks, Li said. China's financial system is marked by that

borrowers need to continue refinancing loans - due to the lack of long-term

financing options - and not by capital shortage, Li said. China should boost the

use of equity in its capital market and establish long-term credit institutions,

Li said.

--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

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