MNI China Daily Summary: Thursday, May 31

     TOP NEWS: China's central bank may intervene in the forex market to

discourage one-way bets against the yuan, Xiao Lisheng, senior research official

at the Chinese Academy of Social Sciences (CASS), a leading government think

tank, told MNI in an interview. The People's Bank of China (PBOC) is likely to

reactivate the so-called counter-cyclical adjustment factor in its daily fixing

formula if market sentiment on the yuan swings in one direction, said Xiao, who

is the deputy director of International Finance Research Institute of World

Economics and Politics at CASS.

     TOP NEWS: China is quickening the preparation of a new so-called negative

list of areas considered off-limits to foreign investors, China Ministry of

Commerce (MOFCOM) said Thursday. Restrictions on foreign investment are to be

reduced or even cancelled in sectors such as energy, resources, infrastructure,

trade transportation, and services, spokesman Gao Feng said in Beijing. The

introduction of the new list will give investors time to adjust to lessen the

impact, Gao noted.

     TOP NEWS: Around 50 U.S. officials and trade representatives will discuss

with their Chinese counterparts on trade and economic issues this week, MOFCOM

said. China reserves the right to take "related action" against the U.S. threats

of tariffs and restrictions on Chinese investment, Gao said. China and the U.S.

should implement the consensuses that they previously reached and work towards a

win-win situation, the spokesman said.

     LIQUIDITY: The PBOC injected CNY90 billion, CNY60 billion and CNY70 billion

in 7-day, 14-day and 28-day reverse repos, with rates unchanged at 2.55%, 2.70%

and 2.85%, respectively, to counter the impact of final settlement and payment

of enterprise income taxes and maturing reverse repos, according to a statement

on its website. The operations resulted in CNY180 billion net injection after

CNY40 billion matured today. CFETS-ICAP's money-market sentiment index closed at

42 on Wednesday, down from 45 on Tuesday. 

     DATA: China's imports and exports with countries along the One Belt One

Road initiative grew 19.2% y/y at $389.1 billion in the first four months,

MOFCOM said Thursday. China's direct outbound investment in overseas

non-financial sectors rose 17.3% y/y to $4.67 billion, the ministry said.

     DATA: China manufacturing PMI accelerated to 51.9 in May from 51.4 in

April. It was also higher than the 51.2 seen last May, and came in above the

51.4 median of an MNI survey. The manufacturing gauge has stayed above 50, which

divides expansion and contraction, for almost two years. The production index

rose to 54.1 from 53.1 in April. The expectations index rose by 0.3 percentage

point to 58.7. High-tech manufacturing production PMI was 54.8, higher than 53.8

in April. 

***Comment: The expectations index remains at a high level, showing the overall

sentiment is quite optimistic. 

     MONEY MARKET RATES: 7-day repo average dropped to 2.8549% from 2.9508%

Wednesday, after the PBOC net injected CNY180 billion via OMO. The overnight

repo average decreased to 2.8571% from Wednesday's 2.8926%.

     YUAN: The yuan rose to 6.4031 against the U.S. dollar from Wednesday's

closing of 6.4248. Earlier today, the PBOC set the yuan central parity rate

stronger at 6.4144 on Thursday, compared with Wednesday's 6.4207. Today is the

first day in six that PBOC has set a stronger fixing.

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

3.6250%, up from the previous close of 3.6150, according to Wind Information.

     STOCKS: Shares rose in Shanghai as A shares will be included into the MSCI

Inc.'s index, led by food service companies, with China Quanjude Group up by the

daily-limit 10%. The benchmark Shanghai Composite Index closed 1.78% higher to

3,095.47. Hong Kong's Hang Seng Index gained 1.1% to 30,386.19.

     FROM THE PRESS: Mortgage rates continued to rise in May as bank funding

costs increased and policies aimed at controlling the property market begun to

take effect, reported the 21st Century Business Herald. The average mortgage

rates for first-time home purchase and second rose to 5.56% and 5.92%

respectively, said Li Weiyi, analyst at Rong360, an internet loan platform.

Mortgage rates were relatively stable in first-tier cities while rising in

second- and third-tier cities where the property markets in cities such as

Huizhou are booming, the report said.

     A total of 25 provinces have published investment plans on major programs

this year, with 10 planning to invest total CNY1 trillion, Economic Information

Daily reported. In general, the scale of investment in 2018 is large and up from

last year, Zhu Zhenxin, the chief analyst at Reality Institute of Advanced

Finance, was cited by the report as saying. Compared with past investment plans,

this year's investment plans emphasize more environmental protection and hi-tech

projects, suggesting higher investment quality, the report said. The number of

public-private partnership projects planned has decreased significantly from

last year, which should help to prevent debt risks and promote the sustainable

growth of local economies, said Wang Zhigang, analyst at Chinese Academy of

Fiscal Science, a unit of the Ministry of Finance.

     Many property developers have managed to raise funding using asset-backed

securities (ABS) as bank lending to the sector and bond issuances became more

difficult, China Securities Journal reported. As of the end of April, a total of

CNY150.9 billion ABS had been issued by property developers, the report said,

citing data from Hua Chuang Securities. Property developers have been more

motivated to issue ABS compared to bonds as issuing ABS can lower their leverage

ratios, minimize the impact on the rating of the issuer, and optimize their

balance sheets, the report said, citing unidentified worker at an ABS department

in a securities brokerage.

--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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