MNI China Daily Summary: Thursday, February 1

     TOP NEWS: The RMB Index China Foreign Exchange Trade System (CFETS), which

measures the yuan against a basket of currencies from 24 major trading partners,

rose 1.02% to 95.82 in January, compared with a gain of 0.51% in December, CFETS

announced Thursday. The BIS RMB index shows the RMB increased 0.85% to 96.75 in

January, while the IMF's SDR index shows a rise of 0.99% to 96.94 for the month,

CFETS said.

     TOP NEWS: China hopes U.S. President Donald Trump's so-called "fair trade"

is not only to be based on unilateral criterion, but also mutual benefits of

market activities, the Ministry of Commerce said Thursday at a regular briefing.

The MOFCOM comments were in response of Trump's SOTU speech Wednesday. Gao Feng,

spokesman for the ministry, said the degree of market openness should not be the

only criterion to judge reciprocity of trade. He noted China prefers to regard

the U.S. as a trading partner instead of a competitor. Gao said the Chinese

government is working to further open sectors such as finance, education,

culture, and healthcare to foreign investors.

     DATA: China's manufacturing activity extended its strength into January

from December, with the monthly growth rate surging to a 13-month high,

according to the Caixin Purchasing Managers' Index (PMI) for the manufacturing

industry released Thursday. Caixin's January manufacturing PMI registered 51.5,

unchanged from December. The index remained above 50, which divides expansion

and contraction, for a 7th consecutive month.

     DATA: Total assets and liabilities of financial institutions under the

supervision of the China Banking Regulatory Commission (CBRC) -- including

banks, trust companies and other financing companies -- grew 8.6% and 8.3%,

respectively, to CNY245.78 trillion and CNY226.37 trillion in December. In

November, both categories saw growth of 10.0%, according to data released by the

CBRC on Thursday.

     RATES: Money market rates dropped. The seven-day repo average was last at

2.7249%, compared with Wednesday's average of 2.8463%. The overnight repo

average was at 2.4849%, compared with Wednesday's 2.5771%.

     LIQUIDITY: The PBOC skipped its Open Market Operations (OMO) on Thursday,

stating on its website that the liquidity in the banking system is "relatively

high", which can absorb the effects of maturing reverse repos and cash

withdrawals. Net drain of CNY80 billion today after same amount of reverse repos

mature. The CFETS-ICAP money-market sentiment index closed at 37 yesterday, down

from 39 at Tuesday's close. Benchmark 7-day deposit repo average rates fell to

2.6500% from 2.8463% on Wednesday.

     YUAN: The yuan weakened against the U.S. dollar on Thursday though the PBOC

set a much stronger fixing for the day. The yuan was last at 6.2966 against the

U.S. unit, compared with the closing price of 6.2920 on Wednesday. The PBOC set

the yuan central parity rate vs the U.S. dollar at 6.3045 on Thursday, much

stronger than Wednesday's 6.3339. Today's fixing surge marks the second biggest

rise year-to-date, and the highest parity since Aug 11, 2015. 

***COMMENT: The yuan rose 3.38 percentage points against the U.S dollar in

January - the biggest monthly appreciation since 1994, when China ended the

fixed exchange rate system. Market sources told MNI the believe the PBOC is

likely to take action if the yuan's sharp appreciation continues, particularly

against the basket currencies.

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

3.9100%, down from the previous close of 3.9125%.

     STOCKS: Stocks dipped in Shanghai, led lower by transportation companies,

with Jinhong Holding Group shares down close to 10%. The benchmark Shanghai

Composite Index closed down 0.97% at 3,446.98. Hong Kong's Hang Seng Index was

0.37% lower at 32,764.10. 

     FROM CHINESE PRESS: The yuan's appreciation against the dollar may slow or

even pause for a while, though it is ultimately expected to continue rising or

maintain relative stability this year, said China Securities Journal on

Thursday, citing analysts. The dollar index could rebound in the short term, but

not significantly. The U.S. Fed's recent attitude towards U.S. interest rates

will likely only have limited lifting effects on the dollar, and the market's

expectations for a stronger dollar are relatively low, the Journal said. The

yuan exchange rate in the short term still depends on the dollar index; but

there is not much room for the dollar to dip below 89, so the yuan's

appreciation could slow, the Journal noted.

     The CBRC's Shanghai branch issued an internal regulatory guidance to banks

earlier this month, stressing that bank loans for acquisition in the property

sector need to be strictly controlled, Caixin reported on Wednesday night. The

guidance pointed out commercial banks' loans for acquisitions in the property

market comprise a high percentage of overall acquisition loans. The guidance,

not formally released to the public, stressed the following: banks cannot give

loans to property developers without proper licenses; the loans cannot be used

to purchase land; and the loans cannot be used for anything other than

acquisitions. 

***COMMENT: This is one of the first regulatory measures in line with a goal

that CBRC listed last week: to control credit flowing to the property market,

and to crack down on banks' activities against the country's property control

policies.

     More financial institutions' irregularities will be revealed as China's

financial regulation improves, said Economic Information Daily in a front-page

commentary. Financial regulators have made public their fines for financial

institutions, showing a high volume of illegal activity in the financial sector,

the Daily said. The CBRC in January alone has fined 497 cases more than CNY898

million, according to China Securities Journal on Thursday. Financial regulation

should not be seen as "tight" or "loose", regulators must simply clamp down on

irregularities, the Daily added.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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