MNI China Daily Summary: Thursday, November 16

     TOP NEWS: China's policymakers will be focused on rebalancing the economy

next year, refraining from using stimulus packages to avoid worsening the

country's debt burdens, according to a leading economist. "There is no way" that

the economy will grow faster next year than it did this year, but will likely

register a still healthy 6.5%, Lu Zhengwei, the chief economist of Industrial

Bank of China, said in an interview Wednesday on the sidelines of a commodities

conference in Guangzhou. "The central government is just not too concerned about

growth," he said.

     TOP NEWS: China's non-financial outbound direct investment (ODI) plunged

40.9% y/y to $86.31 billion in the first 10 months of the year, the Ministry of

Commerce said on Thursday, stressing that "irrational overseas investments,"

including in the real estate, sporting and entertainment sectors, had been

effectively curbed. The decline was smaller than the 41.9% y/y decrease in ODI

in dollar terms recorded in the first nine months of the year.

     LIQUIDITY: The People's Bank of China injected CNY160 billion in seven-day

reverse repos, CNY140 billion in 14-day reverse repos and CNY30 billion in

63-day reverse repos via open-market operations. This resulted in a net

injection of CNY310 billion for the day, as a total of CNY20 billion in reverse

repos matured. A total of CNY122.5 billion in Medium-term Lending Facility (MLF)

loans also matured on Thursday. Taking into account the maturing MLF loans, the

PBOC injected a net of CNY187.5 billion into the banking system. The PBOC has

injected a net CNY820 billion in liquidity into the interbank market via

open-market operations so far this week. The PBOC explained in a statement

Wednesday that it was trying to offset the impact of lower liquidity from

government bond purchases, tax payments, bank reserve requirement payments and

expiring reverse repos to keep liquidity basically stable.

     RATES: Money market rates were lower. The seven-day repo average was last

at 2.8770%, compared with Wednesday's average of 2.9759%. The overnight repo

average was at 2.7870%, compared with Wednesday's 2.8184%.

     YUAN: The yuan was weaker against the U.S. dollar after the People's Bank

of China set the fixing rate weaker for the day. The yuan was last at 6.6341

against the U.S. unit, compared with the official closing price of 6.6298 on

Wednesday. The PBOC set the yuan central parity rate at 6.6286, 0.03% weaker

than Wednesday's 6.6263.

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

3.9250%, compared with the previous close of 3.9700%.

     STOCKS: Stocks fell, dragged down by shares of securities companies. The

benchmark Shanghai Composite Index closed down 0.10% at 3,399.25. Hong Kong's

Hang Seng Index was 0.68% higher at 29,038.47.

     FROM THE PRESS: The China Banking Regulatory Commission on Wednesday set

new capital adequacy guidelines for the government's three policy banks, the

Financial News, a journal run by the People's Bank of China, reported Thursday.

The three policy banks -- China Development Bank, Export-Import Bank of China,

and Agricultural Development Bank of China -- have been highly reliant on bond

issuance due to a lack of other stable and low-cost capital sources, which harms

their capacity to withstand risks and restrains their sustainable growth, the

report said. This is the first time the government has imposed capital

requirements on the policy banks, the report noted. (Financial News)

     The modest growth of China's foreign exchange reserves in recent months is

hardly sustainable and has not created strong support to liquidity in the

interbank market, the China Securities Journal reported Thursday. The yuan

exchange rate is likely to suffer depreciation pressure and foreign exchange

reserves could decline in the period ahead given that the U.S. Federal Reserve

is expected to raise its benchmark interest rate in December and China's capital

outflows are likely to increase at the end of the year, the report warned. The

People's Bank of China has reduced its intervention in the foreign exchange

market, which means the forex position will not see a big jump, the report

argued. The open-market operations of the PBOC will focus on the effects of

fiscal spending and the forex position, so liquidity will remain tightly

balanced, the report noted. (China Securities Journal)

     It is time to build up a long-term property market mechanism to implement

the principle that a "house is for living in, not for speculating on," the

Economic Information Daily said in a front page commentary Thursday. The policy

and capital sides of the market are ready to launch such a mechanism, the

commentary argued. As financial deleveraging has progressed, the flow of capital

into the property market has been curbed and speculation has shrunk, the

commentary said. A series of new government policies, including those supporting

joint-ownership houses and rental housing, is optimizing housing resources.

Regulators have started to ban the use of consumer loans to acquire property, so

the property market is moving forward in a healthier way, the commentary

stressed. (Economic Information Daily)

     Credit risk is likely to increase in 2018 due to pressure from slowing

growth, falling producer prices and a peak in corporate profits, the 21st

Century Business Herald reported Thursday. As of the end of October, there have

been 32 corporate bonds defaults in both public and private markets so far this

year, the report said, citing China Chengxin International Credit Rating Co.,

the largest credit rating agency in China. The number of defaults has decreased

compared with 2016 due to China's improved economic performance and industrial

profits, the report noted. But stricter financial regulation and a tight funding

environment will trigger more credit risk cases, the report warned. (21st

Century Business Herald)

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

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

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