MNI China Daily Summary: Monday, March 26

     TOPS NEWS: China's new central bank chief, Yi Gang, who was assigned the

the post earlier this month, said at a forum on Sunday that China will further

open its financial sector, while risk controls need to keep pace with further

openness. At the forum, which was held by the Development Research Center of the

State Council, an official think tank managed by the governing State Council, Yi

said reducing market restrictions for foreign investment does not mean China

wants to loosen regulation on the financial sector, adding that the government

will treat foreign investors and their Chinese counterparts equally, and

continue to strictly control financial risks. To what extent China will open its

financial markets depends on its regulatory capability, he said.

     TOP NEWS: The current small-scale trade confrontation between China and the

U.S. is likely to escalate with China prepared to take a toughened stance if the

U.S. increases pressure on Beijing in the coming weeks, a Chinese government

trade advisor told MNI in an exclusive interview. "If the U.S. still insists on

acting so unreasonably, China is well aware that the U.S. will only stop when it

feels real pain," said Yu Miaojie, an American-educated trade expert who advises

Chinese government departments such as the Ministry of Commerce, Ministry of

Finance and the State Council's Counsellors' Office. Yu said China could scale

up sanctions on American exports to the country, hurting core interests and

putting pressure on domestic U.S. inflation, thus impairing the support of

Americans for a trade war.

     POLICY: Former Director-General of the World Trade Organization Pascal Lamy

said Monday that although the U.S. has shown limited constraint, China should

continue to seek negotiations as the best way forward. Lamy, speaking at a forum

held by Renmin University, said China should further open its market as it

promised, though the trade confrontation could be in no small degree driven by

the domestic political needs of the U.S. Lamy also predicted China may need

greater discipline in reducing support for state-owned companies which American

companies have claimed are unfair. In return, China will seek a rules-based

investment regime from the U.S. government, he said.

     LIQUIDITY: The PBOC skipped OMO on Monday, stating that the increasing

fiscal expenditure towards month-end can absorb the impact of maturing reverse

repos, and that it intends to keep liquidity condition at a "reasonable and

stable" level. This resulted in a net drain of CNY70 billion after the same

amount of reverse repo matured. There will be a total of CNY160 billion in

reverse repo maturing this week. CFETS-ICAP's money-market sentiment index

closed at 39 on Friday, up from 36 on Thursday.

     MONEY MARKET RATES: 7-day repo average was last at 2.8286%, up from the

2.7036% Friday, after PBOC net drained CNY70 billion via its open-market

operations. The overnight repo average rose to 2.5267% from Friday's 2.5244%.

     YUAN: The yuan gained against the U.S. dollar after PBOC set a stronger

daily fixing. The yuan rose 0.07% to 6.3092 against the U.S. unit, compared with

the official closing price of 6.3240 on Friday. The People's Bank of China set

the yuan central parity rate vs the U.S. dollar at 6.3193 on Monday, stronger

than last Friday's 6.3272.

     BONDS: The yield on benchmark 10-year China Government Bond was last at

3.7275%, up from the previous close of 3.7000%, according to Wind Information. 

     STOCKS: Shares declined in Shanghai, led lower by financial companies on

news that reformist Guo Shuqing would serve as Communist Party Secretary of the

PBOC, with China Pacific Insurance Company down by more than 6%. The benchmark

Shanghai Composite Index closed lower 0.60% at 3,133.72. Hong Kong's Hang Seng

Index gained 0.42% to 30,435.71.

     FROM THE PRESS: China's required reserve ratio needs to be steadily

decreased to let monetary policy return to a neutral status, Financial News

reported, citing Peng Xingyun, director of the monetary policy research office

of the state-backed think tank China Academy of Social Science. At the same

time, credit growth in general needs to be controlled, which is essential

considering China's currently prudent and neutral monetary policy, Peng told the

newspaper.

     China has named Guo Shuqing, current Chairman of China Banking and

Insurance Regulatory Commission, the new Communist Party Secretary of the

People's Bank of China, according to the New York Times. ***Comments: Guo will

be the supervisor of Yi Gang, the new PBOC governor, as PBOC is still dependent

on the Communist Party. The new regulatory design means Guo will have a large

say in monetary policy and in China's economy, as he also serves as top

regulator of the banking and insurance sectors. Former PBOC head Zhou Xiaochuan

was both governor and party secretary of the central bank.

     Property tax legislation and reform of personal income tax are both

steadily advancing, said newly elected Finance Minister Liu Kun on Sunday,

according to the official Communist Party newspaper People's Daily. Liu spoke at

China Development Forum, which gathers top Chinese officials and is held by a

think tank managed by the governing State Council. According to Liu, new

breakthroughs will be made in the reform of China's fiscal and taxation systems

this year, which marks the 40th anniversary of China opening up its economy to

the world.

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

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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