MNI China Daily Summary: Thursday, May 10

     TOPS NEWS: China's CPI rose 1.8% y/y in April, lower than the 1.9% median

in a MNI survey of 19 forecasters. This was the lowest since the 1.5% gain in

January. On a monthly basis, CPI declined 0.2%, recovering from the 1.1% drop in

March. This was due to smaller drop in food prices, down 1.9% compared with a

4.2% decline in March, while non-food prices increased at a smaller pace of 0.2%

m/m from 0.4% in March. 

     DATA: PPI rose 3.4% y/y, lower than the 3.5% median of the same MNI survey.

This compared with 3.2% yearly gain in March. As predicted by MNI in its Five

Things report published on Wednesday, the faster PPI growth in April was driven

by higher commodity prices. The month-over-month PPI drop was the same pace as

March, down 0.2%. It was the third month that the index has remained negative

after registering a 0.3% gain in January.

     ANALYSIS: China's April inflation slowed for a second month due to slower

growth of food prices. Food prices contributed most to the CPI drop, grew 0.7%

y/y from 2.1% in March. Pork prices plunged 16.1% y/y partly on less demand. PPI

grew faster at 3.4% y/y in April, snapping a five-month deceleration. It was

boosted by higher gasoline price.

     LIQUIDITY: The People's Bank of China injected CNY20 and CNY10 billion in

7-day and 14-day reverse repos, respectively, on Thursday, with rates unchanged

at 2.55% and 2.70. This resulted in a net drain of CNY20 billion as a total of

CNY50 billion reverse repos matured today. CFETS-ICAP's money-market sentiment

index closed at 35 on Wednesday, unchanged from Tuesday. 

     MONEY MARKET RATES: 7-day repo average fell to 2.8840% from 2.9510% on

Wednesday. The overnight repo average dropped to 2.4600% from Wednesday's

2.5330%.

     YUAN: The yuan gained against the U.S. dollar despite a weaker fixing. The

yuan rose to 6.3671 from closing of 6.3784 yesterday. The PBOC set the central

parity rate at 6.3768, weaker than Wednesday's 6.3733. The central bank has set

the fixing weaker for four trading days in a row.

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

3.6900%, down from the previous close of 3.7050%, according to Wind Information.

     STOCKS: Shares rose in Shanghai, led by medical companies on speculation of

better profits amid rapid innovations and growth in the pharmaceutical industry,

with Shenzhen Kangtai Biological Products Co. up by the daily-limit 10%. The

benchmark Shanghai Composite Index closed 0.48% higher at 3,174.41. Hong Kong's

Hang Seng Index gained 0.9% to 30,810.65.

     FROM THE PRESS: The supply of local government bonds will surge in the

coming months, China Securities Journal reported. As the first four months saw a

slower pace of local government bond issuance compared with the same period in

the last two years, local governments are expected to speed this up later this

year. The bond swap program, started in 2015 with the aim of swapping all

existing government debt with government bonds by August, was the main reason

for this lower pace, as less new bonds were issued. ***Comments: The Ministry of

Finance on Tuesday published a guideline on local government bond issuance,

requiring that most governments' quarterly bond issuance be no more than 30% of

the whole year. More issuances will come, and the supervision on bond activities

at the local level will increase.

     Some security brokerage companies have stopped selling wealth management

products for banks, Securities Daily reported. The change came after financial

regulators issued the finalized rules regulating WMP businesses, which forbid

such sales by the end of 2020. However, other brokerage companies will keep

selling before the WMP rules take effect, the newspaper said. Yield on WMPs sold

by brokerage companies dropped rapidly, down from as high as 6.7% to the current

low of 2.4%, the report said. Both the new regulations and loose liquidity in

the market led to the drop, a manager at a brokerage company told the newspaper.

     The financial trust sector is under pressure from tight regulations,

Economic Information Daily reported. In the first quarter, selling of financial

trust products dropped 39.2% m/m, and was 24.5% less than a year ago, the

newspaper said, citing Wind Information. As the Chinese government is

campaigning to deleverage and control financial risks, financial trusts'

lending, especially to the property market, has been restricted, the Daily said.

Yields on trust products are expected to keep rising, it said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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