MNI China Daily Summary: Thursday, March 8

     MNI EXCLUSIVE: The People's Bank of China is likely to maintain a

"neutral-to-loose" policy bias this year, contrary to a perception that the

world's second-biggest economy is tightening liquidity to reform its economy,

two well informed monetary sources told MNI. Broad money supply, as measured by

M2, may expand by more than 9% this year, higher than both last year's 8.2%

growth and estimates by other officials, a senior PBOC source told MNI.

Including deposits by other financial institutions, the M3 indicator may expand

"rapidly," said another source, an adviser to the PBOC.

     DATA: China's General Administration of Customs announced the latest trade

statistics on Thursday. Exports surprised, beating the market consensus,

increasing at 44.5% y/y, compared with MNI's survey of 12.7% growth -- this

marks the 12th consecutive month of growth, and is the highest growth recorded

since February 2015. Total exports, on the other hand, are down 14.5% m/m, in

line with historical data (mentioned in Wednesday's "MNI 5 THINGS: China Feb

Trade May Show Deficit, Lower Imports").

     DATA: The appreciation of the dollar dragged down the value of China's

foreign-exchange reserves in February, which was the first month that the

reserves have decreased since January 2017, according to China's central bank.

FX reserves fell by $26.98 billion to $3.13 trillion as of Feb 28, according to

data released Wednesday by the People's Bank of China (PBOC), compared with the

gain of $21.51 billion in January.

     LIQUIDITY: The PBOC skipped its open market operations on Thursday, citing

current liquidity conditions' "relatively high" level, which can absorb the

impact of maturing reverse repos. It resulted in a net drain of CNY100 billion,

as a total of CNY100 billion in reverse repos matures today. - CFETS-ICAP's

money-market sentiment index closed at 34 on Wednesday, slightly down from 36 on

Tuesday.

     RATES: Money market rates fell after PBOC's net injection ended up zero on

Wednesday. The 7-day repo average was last at 2.7522%, down from Wednesday's

average of 2.8460%. The overnight repo average was at 2.5433% compared with

Wednesday's 2.5604%.

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

China set a stronger daily fixing. The yuan was last at 6.3292 against the U.S.

unit, dropping 0.10% compared with the official closing price of 6.3229

yesterday. People's Bank of China set the yuan central parity rate vs the U.S.

dollar at 6.3239 on Thursday, stronger than Wednesday's 6.3294. This has been

the third day that the central bank set the fixing stronger.

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

3.8300%, unchanged from the previous close, according to Wind.

     STOCKS: Stocks were up in Shanghai, led higher by environment protection

company shares, with Tianjin Capital Environmental Protection Group Company

Limited up more than 10%. The benchmark Shanghai Composite Index closed up 0.51%

at 3,288.41. Hong Kong's Hang Seng Index was 1.59% higher at 30,675.82.

     FROM THE PRESS: The Medium-term Lending Facilities injection yesterday

raised the possibility that the PBOC may hike its monetary policy rates

following a very likely U.S. Fed rate hike in March, reported the China

Securities Journal. The PBOC did not inject enough to cover all MLF maturing in

March and only rolled over the expired amount yesterday, suggesting there will

be another MLF injection this month. This injection is likely to happen on March

16, when a total of CNY189.5 billion in MLF loans will mature, the report said.

The rate increase, if it happens, will likely be 5 basis points, the same as in

December, the report said.

     Provision coverage ratios and reserves for bad loans are both to be lowered

to encourage banks to convert more off-balance-sheet assets, like non-standard

assets, to loans, reported the Securities Times. These changes are not to boost

banks' profits; rather, with new regulation boosting banks' capital, banks are

able to convert more non-standard assets to loans and will no longer fail to

meet regulators' requirements, the report said. This move also suggests

regulators are encouraging banks not to hide their risks and to be transparent

with regulators, the report said.

     The campaign to cut overcapacity will hit difficulties in 2018, the

Economic Information Daily reported. For example, the Government Report set a

target to cut 150 million tonnes in coal capacities in 2018, which is higher

than expected, especially as most coal mines are currently making profits -

giving companies less motivation to shut down these mines, the report said,

citing Meng Xiangwen, an analyst at Shenwan Hongyuan Securities. More policies

need to come out to support the settlement of "zombie companies," Li Yuhua, the

mayor of Shizuishan city in Ningxia province, has said, according to the report.

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

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