MNI China Daily Summary: Thursday, March 29

     TOP NEWS: China is open to negotiations with the U.S. regarding recent

trade conflicts, but it will not accept any negotiation based on unilateralist

demands, according to China's Ministry of Commerce. Gao Feng, spokesman for the

ministry, said at a press briefing on Thursday that China only welcomes

constructive negotiation. When asked if China would expand its retaliation list

consisting of products imported from the U.S., Gao said China would take any

necessary actions, and that any measure is possible when defending the interests

of China and its people.

     POLICY: China's economy will contract modestly in the second quarter of

2018 on weaker investment and sluggish exports, the Bank of China, one of the

biggest four state-owned banks, told reporters in a press conference on the

economic and financial outlook Wednesday. The continued financial deleveraging

and ongoing risk prevention campaign will also bring further uncertainty to the

economic growth.

     ANALYSIS: China's financial deleveraging campaign is only halfway complete

and the new asset management regulation rules will reveal the direction in which

the second half will go. From the micro to macro level, there are different

measures to gauge financial leverage, including leverage ratio in the bond

market, the banking sector, and so on. What direction the central government

will choose will be signalled in the regulation rules on asset management

products, providing a clearer signal to the market.

     LIQUIDITY: The PBOC skipped OMOs on Thursday for the fifth consecutive

trading day, stating that the increasing fiscal expenditure towards month-end

would absorb the impact of maturing reverse repo and keep liquidity conditions

at a "reasonable and stable" level. This resulted in a net drain of CNY40

billion after the maturity of the same amount of reverse repos. CFETS-ICAP's

money-market sentiment index closed at 42 on Wednesday, slightly lower than 43

on Tuesday.

     MONEY MARKET RATES: The average 7-day repo rose to 2.9213% from 2.9118% on

Thursday, after the PBOC drained a net CNY40 billion via its open-market

operations. The overnight repo average dropped to 2.5587% from Wednesday's

2.5710%.

     YUAN: The yuan gained against the U.S. dollar despite the PBOC setting a

weaker daily fixing. The yuan rose 0.03% to 6.2864 against the U.S. unit,

compared with the official closing price of 6.2884 yesterday. The People's Bank

of China set the yuan central parity rate vs the U.S. dollar at 6.3046 on

Thursday, weaker than Wednesday's 6.2785. The central bank has set the fixing

weaker for the first time after three trading days of gains, including a notable

jump on Tuesday.

     BONDS: The yield on benchmark 10-year China Government Bond was last at

3.7400%, up from the previous close of 3.7200%, according to Wind Information.

     STOCKS: Shares were up in Shanghai, led by property companies, with Rongan

Property up by the daily limit of 10%. The benchmark Shanghai Composite Index

closed 1.22% higher at 3,160.53. Hong Kong's Hang Seng Index rose 0.27% to

30,102.84.

     FROM THE PRESS: China's financial sector is not open enough and the country

must focus on further reforming and opening up the sector, stressed Xu Zhong,

director of the research bureau at the PBOC, in his article published in the

Economic Daily. China's financial opening up should not be abrupt and without

preparation, but should be a steady and orderly process based on enhancing

financial regulation and the transparency of the financial market, wrote Xu.

Additionally, foreign financial institutions' share in the Chinese market is not

high; and the bond market also needs to be more open to foreign counterparts.

     China's state-owned enterprises have been focused on deleveraging through

debt-equity swap and equity financing, reported China Securities Journal. The

State-Owned Assets Supervision and Administration Commission (SOSAC) has drawn a

warning line of debt/asset ratios for industry SOEs, non-industry SOEs and

technology SOEs at 65%, 70% and 60%, respectively. SOSAC also plans to lower the

average debt/asset ratio of SOEs by 2 percentage points by 2020, and it will aim

to have listed more than 70% assets of SOEs on stock exchanges before then, the

report said.

     There will be a total of CNY851.2 puttable bonds whose put options can be

exercised this year, which might add pressure on the bond market, reported

Shanghai Securities Journal. The ratio of puttable bonds whose put option had

been exercised, to the amount of puttable bonds whose put option could be

exercised in 2017 was 30.93%, and analysts estimate this ratio to come to around

30%-40% in 2018, the report said. There will be a total of CNY186.1 puttable

bonds in the property sector whose options can be exercised in 2018, mainly

during August to December, the report said.

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

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