MNI China Daily Summary: Thursday, October 26

     TOPS NEWS: The makeup of the Politburo Standing Committee team was seen as

confirmation that President Xi Jinping is poised to control China well beyond

his next five-year term, or through 2022, breaking with a tradition that a

younger-generation leader -- or the post-60er's in Chinese vernacular -- is

inducted into the highest echelon of power in a sitting party secretary's second

term. Top party officials seen by observers as strong candidates to succeed Xi

had been pushed out of the way. From an economic perspective, from now until the

National People's Congress in March next year, the CPC's leadership is expected

to consolidate and stabilize. In the medium term, there should be no major shift

in policy direction.

     TOP NEWS: China's government won't set goals to grow its GDP by "multiples"

from 2020, according to a statement given to reporters at a press conference in

Beijing on Thursday. In a plan outlining its "two-step" phase of growth starting

in 2020, China said it will achieve growth through "evolutions" in quality,

efficiency and "driving forces." 

     POLICY: Investors should pay less attention to Chinese GDP growth data as

it may not reflect actual economic conditions in the country, China expert

Michael Pettis told MNI in an exclusive interview. Pettis also argued that China

needs to be very cautious before making any decision to open up its capital

account. Pettis, a well-respected economic theorist and financial strategist, is

now a professor of finance at Guanghua School of Management at Peking University

in Beijing. His China Financial Market Blog is also widely read.

     POLICY: At a time when the Chinese government is trying to rein in

financial risks, analysts and financial regulators said Wednesday at a forum in

Beijing that the country's "gray rhinos" -- large and visible economic problems

that are neglected until they start moving fast -- could be triggered by capital

outflow uncertainties or risks related to state-owned enterprises, local

government debt and the property sector.

     DATA: Foreign financial institutions continued to increase their holdings

of government bonds and negotiable certificates of deposit (NCDs) in September,

driven by the high yield gap between China and U.S. bonds, while asset

management funds bought large amounts of government bonds and policy bank bonds.

Total outstanding bonds at Shanghai Clearing House and China Government

Securities Depository Trust and Clearing Co., covering all major types of bonds,

increased CNY743.9 billion in September, down from an increase of CNY810.4

billion in August, with a slowdown in the net issuance of NCDs the main reason.

The net issuance of NCDs in September shrank CNY126.9 billion, compared with

growth of CNY26.2 billion in August.

     RATES: Money market rates were higher on Thursday after the PBOC injected a

net CNY20 billion via open-market operations. The seven-day repo average was

last at 2.9617%, down from Wednesday's average of 2.9286%. The overnight repo

average was at 2.7029% compared with Wednesday's 2.6691%.

     YUAN: The yuan was slightly stronger against the U.S. dollar on Thursday

even though the People's Bank of China set a weaker daily fixing. The yuan was

last at 6.6330 against the U.S. unit, rising 0.11% compared with the official

closing price of 6.6408 on Wednesday. The People's Bank of China set the yuan

central parity rate against the U.S. dollar at 6.6288 Thursday, modestly

stronger than Wednesday's 6.6322. It was the first stronger fixing this week

after three straight days of weaker fixings. 

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

3.7775%, down from the previous close of 3.7850%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the food and beverage and financial

trust sectors. The benchmark Shanghai Composite Index closed up 0.31% at

3,407.57. Hong Kong's Hang Seng Index was 0.36% lower at 28,200.65.

     FROM THE PRESS: China's Heilongjiang Province has become the first province

to announce it has lowered its target for coal production capacity cuts this

year, the Securities Daily reported Thursday. The target has been adjusted

because the supply of coal was insufficient to meet electricity demand necessary

for stable economic growth, given decreasing coal production in recent years,

the report said. The province's adjusted goal is to cut coal capacity by 0.76

million tons and close five mines. The new goal is well below the previous goal

to cut 2.92 million tons of capacity, the report said. (Securities Daily)

     The liquidity condition in the financial markets at the end of October is

expected to remain neutral, the China Securities Journal reported Thursday. The

People's Bank of China did not inject liquidity into the market via open-market

operations on Wednesday after six straight trading days of net injections. With

the central bank's support, money supply and demand in the interbank market has

been stable, the report said. Liquidity at the end of this month will be mainly

affected by tax payments, but when the tax money reaches the treasury, its

negative impact on liquidity will be reduced significantly. Experts said that

the tax payment effect could lead the central bank to inject less liquidity, and

that the tight but balanced status that the government has been stressing will

be little changed, the report said. (China Securities Journal)

     Reforms of Chinese state-owned enterprises (SOEs), especially those run by

local governments, are expected to speed up, the Economic Information Daily, a

financial newspaper under the official Xinhua News Agency, reported Thursday.

Trading of stocks of 32 local SOEs has been suspended as they prepare for

significant reorganization of their assets. Experts said that with the 19th

Party Congress's emphasis on the need to deepen SOE reforms and develop mixed

government-private ownership in the economy, the overhauls of local SOEs would

accelerate in 2018. Transforming the SOE system to mixed government-private

ownership has become a key factor in the reforms -- as of the end of 2016,

nearly 70 percent of the central government's SOEs and their subsidiaries were

owned jointly by the government and private sector firms, the newspaper said.

(Economic Information Daily)

     China has made significant progress so far this year in limiting local

government debt, the Securities Times reported Thursday. Issuance of local

government bonds fell 24.3% in September compared with August, to CNY356

billion. In the first three quarters of the year, total issuance was CNY3.53

trillion, down 30.5% compared with the same period last year, the newspaper

said. The success was because of tighter regulation by the Ministry of Finance,

the newspaper argued. Also helping was a big decrease in outstanding debt

because of debt swaps, and the increased cost of bond issuance, the report said.

(Securities Times)

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

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

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