MNI China Daily Summary: Thursday, October 12

     TOP NEWS: The economy has made unexpectedly good progress at a stable

growth pace, laying a solid foundation for good momentum in the future, Sheng

Yunlai, the chief economist of the National Bureau of Statistics, said Thursday

in a statement on the NBS website. As supply-side reforms deepen, the

development of new growth drivers is accelerating and the balance between demand

and supply is improving, Sheng said. All the main economic indexes have shown

positive signs. In the first eight months this year, industrial value-added rose

6.7% year-on-year, 0.7 percentage point higher than the growth rate in the same

period last year. Railway freight volume jumped 15.3% year-on-year, compared

with a drop of 6.2% in the first eight months last year, Sheng noted. Industrial

profits increased 21.6% y/y, 13.2 percentage points higher than that in the same

period last year. Among 41 main industrial sectors, 39 saw profit growth, six

more than last year, Sheng added.

     LIQUIDITY: The People's Bank of China injected CNY20 billion in seven-day

reverse repos via open-market operations on Thursday. This resulted in a net

CNY40 billion drain for the day, as a total of CNY60 billion in reverse repos

matured. The CFETS-ICAP money-market sentiment index ended at 42 on Wednesday,

barely changed from 41 at Tuesday's close. The lower the reading, the better the

liquidity conditions in the interbank market.

     RATES: Money market rates fell Thursday morning after the PBOC drained a

net CNY40 billion in liquidity via open-market operations. The seven-day repo

average was last at 2.8272% on Thursday, lower than Wednesday's average of

2.8939%. The overnight repo average was at 2.6056%, lower than Wednesday's

2.7236%.

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

China set a stronger daily fixing. The yuan was last at 6.5857 against the U.S.

unit, compared with the official closing price of 6.5887 on Wednesday. The PBOC

set the yuan central parity rate against the U.S. dollar at 6.5808 on Thursday,

stronger than Wednesday's 6.5841 and the third consecutive day the PBOC has set

a stronger fixing.

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

3.5936%, up from the previous close of 3.5617%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by the coal and non-ferrous metal

sectors. The benchmark Shanghai Composite Index closed down 0.06% at 3,386.10.

Hong Kong's Hang Seng Index was 0.37% higher at 28,495.63.

     FROM THE PRESS: China's overall financial leverage ratio remained

relatively stable in the second quarter, with non-financial institutions' ratio

falling, that of local governments basically unchanged, and that of the

household sector rising, the China Securities Journal reported Thursday. The

overall leverage ratio edged up 0.7 percentage point as of the end of September

to 238.2% from 237.5% at the end of June, the report said. Continued strong

demand for housing credit was the main contributor to the rising ratio in the

household sector, with short-term consumption loans flooding into the property

market after banks restricted mortgage lending, the report noted. The leverage

ratio of local governments will increase in the second half of the year as the

gap between fiscal revenue and spending widens, the newspaper said. The issuance

of local government bonds will rise since borrowing via illegal fund-raising

vehicles is now being strictly regulated, the report said. Still, it remains a

concern that some local governments may continue to provide guarantees to

public-private partnership projects, which is against government policy, the

report warned. (China Securities Journal)

     A group of city-based investment companies have announced that they will no

longer act as local government financing vehicles (LGFV) so that they have more

flexibility to raise and invest funds, the 21st Century Business Herald reported

Thursday. According to government regulations, investment companies are not

allowed to raise funds in overseas markets unless they have promised not to act

as LGFVs. In addition, companies cannot invest in cooperative projects between

local governments and private investors if they issue local government bonds.

But analysts think the withdrawal of some finance companies will not have a

large impact on the outstanding volume of local government debt issued by LGFVs,

as the bonds are backed by the local governments. And the withdrawals do not

mean these companies will sever all their connections with local governments

since the governments are often shareholders and can subsidize the finance

companies via other business dealings, the report noted. (21st Century Business

Herald)

     Regulator should take into consideration the "limited rationality" of

property market investors to prevent them from circumventing new regulations,

the Economic Information Daily, an economic journal run by Xinhua News Agency,

said in a commentary Thursday. The rampant housing speculation evident in recent

years clearly indicates the irrationality among property market investors, and

regulators need to take this into consideration when drafting policies to

improve the market's efficiency, the commentary argued. The rise in house prices

in large cities has been reduced to the same level as the growth rate of the

real economy and so it is the typical "herd effect" of investors seeking other

opportunities that regulators must step in to curb. (Economic Information Daily)

     The sale of heavy trucks surged in September as the economy continued to

expand, the 21st Century Business Herald reported Thursday. Sales of heavy

trucks broke 100,000 units in September, rising 89% year-on-year and 7%

month-on-month. Full-year sales are expected to exceed 1.1 million units, which

would be a new record, the report said. As a leading indicator of economic

performance, the sale of heavy trucks is highly correlated to commodities

transportation and fixed-asset investment, so the big rise reflects a robust

economy. But there is no sign such growth will continue next year, since the

government campaign to reduce overcapacity is still pushing forward, 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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