MNI China Daily Summary: Thursday, March 1

     TOP NEWS: The PBOC announced on its website Thursday morning that it

injected CNY100 billion in liquidity via seven-day, CNY30 billion via 28-day,

and CNY20 billion via 63-day reverse repos, with rates unchanged at 2.50%, 2.80%

and 2.95%, respectively. The PBOC did not give further explanations about its

operations this morning. The injection came after the PBOC skipped OMOs for two

consecutive trading days. It resulted in a net drain of CNY10 billion as CNY160

billion reverse repo matures today. CFETS-ICAP's money-market sentiment index

closed at 56 on Wednesday, up from 46 on Tuesday.

     DATA: The performance shown by the Caixin PMI index -- which focuses more

on smaller and medium-sized companies -- was at odds with the official

manufacturing PMI, jointly released on Wednesday by the China Federation of

Logistics and Purchasing and the National Bureau of Statistics. The CFLP/NBS PMI

fell to 50.3 in February, the weakest since July 2016, due to weak output

impacted by the Chinese New Year holidays, and sluggish external demands partly

caused by a strong yuan. However, both PMI reports showed that business

sentiments are very positive.

     RATES: Money market rates fell after PBOC drained a net of CNY10 billion

via its open-market operations. The 7-day repo average fell to 2.8829% from

Monday's average of 2.9965%. The overnight repo average was at 2.6857% compared

with Monday's 2.7466%.

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

China set a weaker daily fixing. The yuan was last at 6.3424 against the U.S.

unit, dropping 0.29% compared with the official closing price of 6.3335

yesterday. The PBOC set the yuan central parity rate vs the U.S. dollar at

6.3352, weaker than Wednesday's 6.3294. 

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

3.8275%, down from the previous close of 3.8350%, according to Wind.

     STOCKS: Stocks rose in Shanghai, led by computer and computer equipment

companies shares on investors' optimism on outlook of the sector, with Rapoo

Technology up more than 10%. The benchmark Shanghai Composite Index closed up

0.44% AT 3,273.75. Hong Kong's Hang Seng Index was 0.18% higher at 30,900.22.

     FROM THE PRESS: The 19th Communist Party Central Committee third plenum, a

meeting of China's most high-profile officials, stated in a communique that the

plenum has approved a list of the country's leadership candidates ahead of a

reshuffle. According to the communique concluding the three-day third plenum

meeting, the list will be recommended to the National People's Congress, which

starts next week.

     The yuan is likely to remain stable with a rising trend, and the currency

is expected to strengthen its two-way fluctuation characteristic, reported China

Securities Journal. As the dollar will be relatively weak in the medium term,

despite its recent rise, while China's economic fundamentals are still strong,

expectations for the yuan remain unchanged. The yuan will continue to fluctuate

following changes in the dollar. As the dollar could rebound ahead of U.S. Fed

interest rate announcement in March - which is expected to see a hike - the yuan

will experience some fluctuations. In the short term, the dollar's rebound will

continue due to expectations that Fed will hike interest rates, an increase in

U.S. inflation, and Fed officials' recent hawkishness.

     China's reform of its financial system will be further deepened this year,

with more policies issued for structural adjustment of the financial sector,

reported China Securities Journal. The financial sector is still not serving the

real economy well -- the main form of financing is still indirect financing, and

direct financing needs to be increased. Financial risks still exist, calling for

a better regulated, more market-based financial system. Good financial

regulation should not impede operations of the market, and components of

regulation should not conflict with one another, Li Yang, head of state-backed

National Institution for Finance and Development.

--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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