MNI China Daily Summary: Monday, Oct.9

     TOP NEWS: The expansion in the Chinese services sector decelerated in

September, as new orders and output growth decreased, according to the latest

survey of purchasing managers jointly released by Caixin magazine and Markit.

The headline index fell to 50.6 in September, down sharply from 52.7 in August

and the weakest reading since 50.2 in December 2015. Caixin's China Composite

PMI, which combines the results of the manufacturing and services surveys, fell

to 51.4 in September from 52.4 in August, the lowest in three months, an

indication that growth momentum may be slowing.

     LIQUIDITY: The People's Bank of China skipped open-market operations on

Monday, resulting in a net drain of CNY180 billion for the day, as a total of

CNY180 billion in reverse repos matured on Monday. The PBOC said in a statement

that interbank market liquidity remains at a "relatively high level" that will

offset the impact of expiring reverse repos. The PBOC drained a net CNY360

billion via open market operations the week before the week-long National Day

holiday. A total of CNY320 billion in reverse repos and CNY84 billion in

Medium-term Lending Facility instruments will mature this week.

     DATA: China's weekly Renminbi Index versus 24 trade-weighted currencies was

published Monday by the China Foreign Exchange Trading System -- the central

bank unit that runs the country's interbank market. The index fell 0.21% to

94.34 last week after a 0.34% drop the previous week. As of Sept. 29, the yuan

had depreciated 0.52% against the 24-currency basket since Dec. 30, according to

MNI calculations.

     RATES: Money market rates were lower. The seven-day repo average was last

at 3.0355%, compared with 3.1622% on Sept. 30, the last trading day for banks.

The overnight repo average was at 2.7260%, compared with 2.9518% on Sept. 30.

     YUAN: The yuan reversed course and strengthened against the U.S. dollar on

Monday despite the People's Bank of China setting a weaker fixing rate for the

day. The yuan was last at 6.6385 against the U.S. unit, compared with the

official closing price of 6.6470 on Sept. 29, the last trading day before the

holiday. The yuan had opened weaker but strengthened later in the morning. The

PBOC set the yuan central parity rate at 6.6493, 0.19% weaker than the 6.6369

set on Sept. 29.

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

3.5753%, compared with the previous close of 3.5901%.

     STOCKS: Stocks rallied, with the household appliance and liquor sectors

leading gains. The benchmark Shanghai Composite Index closed up 0.76% at

3,374.38. Hong Kong's Hang Seng Index was 0.51% lower at 28,312.48.

     FROM THE PRESS: The selective reduction in banks' reserve requirement

ratios (RRR) announced by the People's Bank of China on Sept. 30, to be

implemented as of Jan. 1, is just a fine-tuning of current monetary policy, not

a broad-based RRR cut, the Financial News, a journal run by the PBOC, reported

Monday, citing analysts. Monetary policy will be more targeted and focused on

structural adjustments, the report said. The proportion of wholesale funding in

financial institutions' liabilities has risen because small and medium-sized

banks and non-bank institutions have to get liquidity from big banks in an

indirect manner, the report noted, so this RRR cut will effectively guide banks

to optimize their liability structures. But the move will not inject as much

liquidity as expected, the report stated. According to the PBOC statement, there

will be two levels of RRR cuts: at present, 98% of financial institutions will

qualify for the 50 basis-point reduction, the report said, and will release

hardly any new liquidity. The additional 100 basis-point reduction for qualified

banks will only apply to a few institutions, the report said. (Financial News)

     China will continue to increase purchases of the U.S. treasury securities

at a modest pace given the rising bilateral trade surplus, the slowing of

Chinese overseas investment and expectations of U.S dollar appreciation, the

official People's Daily reported Monday. Currently, Chinese investment in U.S

Treasuries accounts for over one-third of total Chinese foreign-exchange reserve

assets after six consecutive months of growth in U.S Treasury holdings, the

report said. This is an appropriate ratio, it added. Increasing or reducing U.S

Treasury holdings is normal investment behavior based on changes in Chinese

international payments and foreign-exchange reserves, the report noted.

(People's Daily)

     The growth rate of real GDP in China is expected to reach 6.8% in the third

quarter given the sharp rise in the official PMI for October and the

acceleration of industrial profits reported in September, the Shanghai

Securities News reported Monday. Although exports, inventory restocking, and

infrastructure investment have slowed in the period from July to September, real

estate investment was better than expected. In combination with the stability in

consumption and services, the performance of the economy will continue to be

strong, the report argued. However, the fourth quarter is expected to suffer

headwinds, given the higher comparison base in the same period of last year and

weak property sales, the report said, adding real GDP could decelerate to 6.6%

for the October-December period. (Shanghai Securities News)

     Property sales during "Golden Week" -- which are usually robust during the

week-long holiday -- were sluggish this year, as regulations aimed at curbing

rising property prices had an impact, the Economic Informational Daily reported

in its front page on Monday. Sales volumes in larger Tier 1 and Tier 2 cities

dropped to the lowest levels since 2014, while sales in smaller Tier 3 and Tier

4 cities remained robust due to the continued property inventory destocking

process, the report said. Although house prices have peaked this year, buyers'

willingness to purchase properties has not abated. Authorities have maintained

strict property market controls, particularly in smaller cities, to remove the

expectation of higher housing prices in future, the report suggested. (Economic

Information Daily)

--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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