MNI China Daily Summary: Monday, October 30

     TOP NEWS: M2 money supply growth will accelerate back above 10% next year

as the impact of deleveraging declines, Sheng Songcheng, counsellor to the

People's Bank of China, said Saturday at a financial conference in Hangzhou. The

expanding gap between the growth of M2 and total social financing has been due

to financial regulation and deleveraging, Sheng said, explaining that the

slowdown of M2 growth resulted from a drop in banks' lending to non-bank

institutions. The yuan exchange rate will fluctuate in a range of 6.5 to 6.6 to

the dollar this year and liquidity will be stable under a tight policy bias,

Sheng noted. Chinese interest rates are likely to rise in the short term, but

upward momentum in the long term has not formed yet, Sheng argued. (Sina

Finance)

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

reverse repos, CNY30 billion in 14-day reverse repos and CNY50 billion in 63-day

reverse repos via open-market operations. This resulted in a net injection of

CNY40 billion for the day, as a total of CNY110 billion in reverse repos matured

on Monday. The PBOC has injected net liquidity in 10 of the last 12 trading days

and left liquidity unchanged the other two. The PBOC has explained that it is

seeking to offset the effects of large tax payments and expiring reverse repos

this month to maintain a stable liquidity level.

     RATES: The Ministry of Finance reopened and sold CNY34 billion in five-year

special government bonds at a yield of 3.3902% in an auction on Monday. The

yield was higher than the rate of 3.8211% 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. The seven-day repo average was last

at 2.9391%, higher than Friday's average of 2.8617%. The overnight repo average

was at 2.7252%, lower than Friday's 2.7557%.

     YUAN: The yuan rose against the U.S. dollar even though the People's Bank

of China set a weaker daily fixing. The yuan was last at 6.6457 against the U.S.

unit, compared with the official closing price of 6.6528 on Friday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.6487, weaker than

Friday's 6.6473.

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

3.9300%, up from the previous close of 3.8300%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by shares of insurance and securities

brokerage companies. The benchmark Shanghai Composite Index closed down 0.77% at

3,390.34. Hong Kong's Hang Seng Index was 0.06% lower at 28,419.66.

     FROM THE PRESS: Medium- and long-term corporate financing has been

strengthened while short-term funding is shrinking as the deleveraging of the

financial sector has started to work, Lian Ping, chief economist at Bank of

Communications, said Monday in a commentary in the Financial News, a journal run

by the People's Bank of China. The growth of loans to the property sector has

slowed, although the proportion of loans used for property development has

grown, Lian noted, adding that this does not change the outlook for a slowdown

of the property sector. Although mortgage loans grew at a slower pace,

short-term household consumer loans surged by three times in the first three

quarters compared with the same period last year, an indication that many of

these loans are likely being used to fund property purchases, Lian warned,

suggesting that regulators should impose stricter regulations on these loans.

(Financial News)

     China is likely to reopen the dollar-denominated sovereign bonds issued in

Hong Kong on Oct. 26, considering the large market demand for the initial

five-year and 10-year issues, Caixin reported Saturday, citing a source familiar

with the information. China issued these non-rated bonds at a "tricky" time

after some international rating agencies had downgraded China's sovereign

rating, Caixin noted. The successful issuance, despite not having a rating, will

encourage other domestic bond issuers, mainly state-owned companies and local

governments, to issue non-rated bonds, the report said. The issuance sent a

signal to the market that "this [issuing non-rated bonds] is correct in the

political aspect," Caixin quoted the source as saying. (Caixin Magazine)

     Financial controls will enhance the "double-pillar" framework of monetary

policy and macro-prudential policy and prevent systemic financial risks, the

Economic Information Daily said in a front page commentary Monday. The People's

Bank of China should flexibly use its money market facilities to improve the

effect of prices in resource allocation, the commentary argued, adding that

regulators should enforce regulation and enhance "counter-cyclical" adjustment.

China should further enrich the framework by including cross-border capital

flows in macro-prudential assessments and increasing the prudent management of

the property market, the commentary 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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