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TOP NEWS: China's GDP may expand by 7.0%, up from a prior forecast of 6.9%,
said China International Capital Corporation (CICC), a state-owned investment
bank. China's new regulations responding to U.S. tax reform was a factor in
making the revision, CICC said. CICC expects the growth in property investment
to accelerate and spending in infrastructure to be resilient, given recent
increases in land sales, and additional investment in rental and public housing
projects. Other key forecast: CPI to rise to 2.6% from prev. 2.5%; 25bp hike in
benchmark deposit and lending rates; 30bp hike in money market rates; the yuan
to strengthen, esp. in 2H, to 6.2 vs. the dollar by Dec. 31.
CHINA DATA: Higher valuation of assets and less capital outflow helped fuel
a surge in China's FX reserves in December, which was the 11th month that the
reserves have increased, according to China's central bank. FX reserves
increased by $20.67 billion to $3.14 trillion on Dec. 31, the highest level
since September 2016, according to PBOC data on Sunday. The gain doubles the
$10.06 billion increase recorded in November. "Cross-border capital flows and
transactions were more stable and balanced in December," the State
Administration of Foreign Exchange (SAFE), a division of PBOC, said on its
website Sunday. Non-dollar currencies appreciated against the dollar while asset
prices in general rose, contributing to a gain in China's FX reserve valued in
the U.S. dollar, it said.
CHINA POLICY: The leverage ratios of most Chinese SOEs may gradually
decline in 2018, Moody's Investors Service said in an emailed report on Monday.
Earnings of the 53 Chinese SOEs rated by Moody's are expected to gain while
their debt growth may slow, according to Moody's. It also said China's
supply-side reform and efforts to revamp SOEs helped improve earnings and slow
RATES: Money market rates rose. The seven-day repo average rose to 2.6921%
from Friday's average of 2.6860%, while the overnight repo average rose to
2.4315% from Friday's 2.3957%.
LIQUIDITY: PBOC skipped its open market operations on Monday, citing
"relatively high" liquidity, which is sufficient to absorb the impact of
maturing reverse repos. This results in a net drain of CNY40 billion for the
day, as a total of CNY40 billion in reverse repos matures on Monday. Today is
the 11th consecutive trading day that PBOC skipped its open market operations.
There will be a total of CNY410 billion in reverse repos maturing this week.
YUAN: The yuan traded weaker against the U.S. dollar on Monday even after a
higher daily fixing rate set by the People's Bank of China (PBOC). The yuan was
last at 6.4875 against the dollar, down from the official closing price of
6.4851 on Friday. The PBOC set the yuan central parity rate at 6.4832, higher
than last Friday's 6.4915. Monday's fixing is the highest since May 3, 2016.
BONDS: The yield on benchmark 10-year China government bonds gained to
3.9300% from Friday's close of 3.9100%.
STOCKS: Shanghai's stock market rose, led by securities shares. The
benchmark Shanghai Composite Index closed up 0.52% at 3,409.48. In Hong Kong,
the Hang Seng Index dropped 0.03% to 30,806.47.
FROM THE PRESS: The yuan may lose its strength and trade about 6.6 against
the dollar this year, Sheng Songcheng, PBOC's former statistics chief, said
Saturday at a conference in Shanghai, reported Shanghai Securities News. The
Chinese currency closed on Friday at 6.4851, according to MNI data. The yuan had
recently been boosted by the widening gap between China's market rates and the
U.S. Federal Reserve's benchmark interests rate, by the market's betting on the
yuan's appreciation and on the weakening U.S. dollar index, Sheng argued. The
Central Economic Working Conference last month, attended by China's top
policymakers, emphasized controlling money supply and maintaining a "reasonable
and balanced" yuan exchange rate, a decision that has also impacted the market,
Sheng noted. Sharp movements in either direction won't benefit the Chinese
economy, Sheng said. (Shanghai Securities News)
The China Banking Regulatory Commission (CBRC) on Saturday issued a
guideline on entrusted loans to further reduce leveraging and preventing risks
in the financial sector, the Economic Information Daily reported. According to
the guideline, asset management products(AMP) cannot be entrusted for bank
loans. Clients of entrusted loans cannot re-lend them for arbitrage. As well,
entrusted loans cannot be invested in bonds, futures, financial derivative
products or AMP. Citing unidentified sources, the newspaper said the new rule
targets non-standard funding through AMPs issued by securities and mutual fund
companies. It also affects entrusted loans such as those in properties and local
government financing vehicles, the report said. (Economic Information Daily)
China's small and medium-sized city commercial banks may be under greater
pressure to reduce balance sheets by the government's push for deleveraging and
stricter oversight, the China Securities Journal reported Monday, citing Zeng
Gang, director of Banking Research Center with the Chinese Academy of Social
Sciences (CASS). Regulators will focus on shadow banking and cross risks in the
financial sector this year, and continue cracking down on illegal businesses.
Off-balance-sheet transactions will be made more transparent, so banks can no
longer expand using shadowy transactions, the report noted. (China Securities
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