MNI China Daily Summary: Monday, October 16

     TOPS NEWS: China's gross domestic product (GDP) is likely to reach 7% in

the second half of the year, driven by the rapid growth in domestic consumption,

People's Bank of China Governor Zhou Xiaochuan said at an international banking

seminar in Washington on Sunday, according to the PBOC website. China's

debt-to-GDP ratio has risen rapidly under the fiscal and monetary policies

enacted to tackle the headwinds from the 2008 financial crisis, and that effort

was worthy, Zhou said. Recently, China has reduced the ratio, though the drop is

not huge, Zhou said, adding that China needs to continue to reduce its leverage

ratio. He also stressed that much of China's debt is due to borrowing by local

government financing vehicles. In response to questions on whether China would

increase its leadership in the reform of the international monetary system, Zhou

said that China has contributed to global economic management in recent years

but that the country wants to remain focused on tackling domestic problems,

including furthering its economic development and reforming its financial

regulations.

     TOP NEWS: The yield on the most actively traded 10-year China government

bond, which matures on Aug. 3, 2027, reached 3.71% this morning, a high for the

year. 

     DATA: China's Consumer Price Index rose 1.6% year-on-year in September,

decelerating from the 1.8% gain in August, in line with the MNI survey median

forecast for a 1.6% rise. In month-on-month terms, the CPI rose 0.5% m/m last

month after a 0.4% gain in August. The CPI has risen m/m for three consecutive

months.

     DATA: China's Producer Price Index accelerated to 6.9% year-on-year in

September, the highest rate since March's 7.6% and up from the 6.3% gain in

August. The rise was largely unexpected, with the MNI survey median forecast

calling for an unchanged rate of 6.3%. On a month-over-month basis, the PPI rose

1.0% in September, compared with a 0.9% gain the month before. It was the third 

consecutive m/m rise.

     POLICY: China's M2 money supply growth rebounded in September while new

bank loans and Total Social Financing also grew above expectations, according to

data released by the People's Bank of China on Saturday, reinforcing

expectations that third quarter GDP growth will be quite strong. However, the

effects of the government's deleveraging campaign and the lending limits imposed

by annual bank loan quotas could well mean a growth slowdown in the fourth

quarter.

     RATES: Money market rates were higher on Monday after the PBOC's injection

of CNY20 billion via open-market operations resulted in no change of liquidity.

The seven-day repo average was last at 2.8838%, up from Friday's average of

2.8238%. The overnight repo average was at 2.5662% compared with Friday's

2.5442%.

     YUAN: The yuan was stronger against the U.S. dollar Monday morning even

though the People's Bank of China set a weaker daily fixing. The yuan was last

at 6.5798 against the U.S. unit, rising 0.01% compared with the official closing

price of 6.5868 on Friday. The People's Bank of China set the yuan central

parity rate against the U.S. dollar at 6.5839 on Monday, modestly weaker than

Friday's 6.5808.

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

3.6345%, up from the previous close of 3.5987%, according to Wind, a financial

data provider.

     STOCKS: Stocks dropped, led lower by the property agency and

telecommunication service sectors. The benchmark Shanghai Composite Index closed

0.36% lower at 3,378.47. Hong Kong's Hang Seng Index was 0.76% higher at

28,693.62. 

     FROM THE PRESS: Risks in the Chinese banking sector have been curbed with

stricter regulations, the Financial News, a newspaper published by the People's

Bank of China, said in a report Monday. The asset quality of the sector has

remained stable, with the bad loan ratio dropping 0.04 percentage point compared

with the beginning of the year, the newspaper said. The China Banking Regulatory

Commission is paying great attention to the illegal flow of consumer loans to

the property sector and will continue to strengthen related regulation. The

CBRC's efforts to control risks and reduce illegal activities in the banking

sector have focused on curbing negotiable certificates of deposit, wealth

management products, and banks' off-balance sheet businesses, the newspaper

noted. The CBRC said it would continue to strengthen such supervision.

(Financial News)

     China will start a new round of "opening to the world," as indicated by the

government's declarations that it would expand imports, the 21st Century

Business Herald reported Monday. China is making efforts to adjust its import

structure to encourage imports of advanced technological equipment and key

components of products, stabilize resources imports, and, to some extent,

increase imports of consumer products, the newspaper said, citing Bai Ming,

deputy head of the International Market Research Department at the Ministry of

Commerce. China's imports until now mainly have been bulk commodities such as

iron ore, crude oil and coal, which expose China's growth to excessive reliance

on the international market, the newspaper noted. To increase imports of

consumer products, China is working to speed up the signing of agreements to

inspect and quarantine fruit imports and to facilitate auto imports. (21st

Century Business Herald)

     Hong Kong Secretary for Development Michel Wong Wai-lun said in an

interview with Hong Kong Metro Radio that the government has already identified

210 patches of land on which around 310,000 housing units could be built in the

next six to seven years, according to the Hong Kong government website. Some 70%

of the 310,000 units would be public housing to be developed by public

institutions and non-profit developers to provide cheaper housing for low-income

citizens, Wong said. According to a post by the radio channel, he also stressed

that the government's effort to identify more land for residential use would not

stop because any pause could adversely affect housing supply in coming years.

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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

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