MNI China Daily Summary: Monday, November 27

     TOP NEWS: Combined profits at Chinese industrial companies rose 25.1%

year-on-year in October to CNY745.41 billion, the National Bureau of Statistics

said Monday. That compared with an increase of 27.7% y/y in September, the

highest since data on industrial profits became available in February 2012,

according to Wind Information. For the first 10 months of this year, total

profits rose 23.3% y/y to CNY6.25 trillion, 0.5 percentage point higher than the

22.8% gain in the January-September period.

     TOP NEWS: Assets and liabilities of Chinese banking institutions grew at a

slower pace in October, the China Banking Regulatory Commission said Monday.

Total assets increased 10.0% year-on-year to CNY241.58 trillion, while

liabilities rose 10.0% to CNY222.67 trillion, both the lowest year-on-year

monthly growth rates this year, the CBRC noted. Both assets and liabilities of

Chinese commercial banks alone increased 10.1% in October to CNY187.38 trillion

and CNY173.16 trillion, respectively, continuing a decline in momentum, the CBRC

said.

     RATES: The Ministry of Finance reopened and sold CNY26.4 billion in

five-year special government bonds at a yield of 3.8837% in an auction on

Monday. The yield was lower than the rate of 3.8857% that bonds with the same

maturity fetched in the secondary market on Friday. The bonds were first

auctioned on Sept. 19 with a coupon of 3.59%.

     RATES: Money market rates were mixed on Monday. The seven-day repo average

was last at 2.8668%, lower than Friday's average of 2.9387%. The overnight repo

average was at 2.8144%, higher than Friday's 2.7891%.

     LIQUIDITY: The People's Bank of China injected CNY70 billion in seven-day

reverse repos, CNY60 billion in 14-day reverse repos and CNY10 billion in 63-day

reverse repos via open-market operations. This resulted in no injection/drain

for the day, as a total of CNY140 billion in reverse repos matured on Monday. A

total of CNY950 billion in reverse repos mature this week. Liquidity is expected

to tighten in the interbank market this week due to cross-monthly factors.

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

China set a weaker daily fixing. The yuan was last at 6.6063 against the U.S.

unit, compared with the official closing price of 6.6037 on Friday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.5874 on Monday, weaker

than Friday's 6.5810. It was the first weaker fixing after three straight

trading days of stronger fixings.

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

3.9700%, up from the previous close of 3.9375%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by the non-ferrous metal sector. The

benchmark Shanghai Composite Index closed down 0.94% at 3,322.23. Hong Kong's

Hang Seng Index was 0.61% lower at 29,682.82.

     FROM THE PRESS: With monetary policy transitioning to price-dominated

management, the central bank's control of money market rates needs to be further

improved, the Financial News, a journal run by the People's Bank of China,

reported Monday on its front page. The duration structure of money market rates

needs to be reformed to better influence long-term rates, the report said,

citing analysts. The PBOC's monetary instruments have helped optimize the

benchmark yield curve and accelerate the transmission of monetary policy. The

expansion of the bond market and the reduction in the required reserve ratio

could also make bond rates and credit rates more sensitive to policy signals,

the report argued. The macro-prudential framework should include cross-border

capital flows in its macro-prudential assessments and strengthened controls of

the property market to allow for differential policies to respond to varying

situations among cities, the report said. (Financial News)

     The low growth of M2 money supply will not have a large negative influence

on the economy, and the importance of stabilizing liquidity and securitizing

financial sector risks has not changed, the People's Daily said in a commentary

Monday. The deceleration of M2 growth has been a result of financial

deleveraging and the movement of deposits out of instruments included in the M2

gauge as financial innovation has diversified savings options, the commentary

noted. Given the background of prudential monetary policy, a proper level of M2

will be maintained with the support of various policy tools, the commentary

argued, adding that the market should not overreact to the current level of the

M2 supply. (People's Daily)

     Regulators are expected to tighten controls on consumer loan asset-backed

securities as issuance of those instruments in the exchange market has surged by

five times in the past year, the Economic Information Daily reported Monday. The

new issuance of consumer loans this year has accounted for over 30% of total

newly issued asset-backed securities of CNY1 trillion as of Nov. 23, the report

said. But a large amount of these securities have been issued in the exchange

market, which means they are out of the control of authorities, the report

noted. This could trigger default risk due to a lack of transparency, poor risk

assessment as well as weak risk controls by issuers, the report warned.

(Economic Information Daily)

     The property market in China is undergoing a transition as controls on

property sales tighten and rental housing policy is pushed forward, Xinhua News

Agency reported Sunday. The toxic circle of "tighter controls, higher prices" is

expected to be broken because rising housing prices have been reined in,

policies to reduce inventories of unsold houses have worked, and financing

controls and the provision of new land for development have curbed speculation,

the report said. Half of residential housing problems in big cities can be

solved by housing purchases and half through rental housing, the report argued.

The emphasis on both housing purchases and rental housing will be a long-term

policy for the property market, the report said. (Xinhua)

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

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

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