MNI China Daily Summary: Tuesday, April 24

     TOP NEWS: Monetary policy should not be tightened in 2018 as China may see

deflation as early as the fourth quarter as both domestic and overseas demand

weakens, Zhang Bin, senior fellow at the China Academy of Social Science, the

Chinese government's leading think tank, told MNI in an interview. "Considering

the economy is showing a downturn, monetary policy needs some adjustment to an

easing bias, particularly in the fourth quarter," Zhang said on the sidelines of

a briefing held by the China Finance 40 Forum.

     TOP NEWS: China needs to implement the recently-announced measures to open

up the country to foreign investment, stressed the CPC Politburo, comprising the

25 most powerful Chinese communist party leaders, according to Xinhua News

Agency. China needs to further advance the healthy development of credit growth,

as well as the stock market, bond market, FX market and property market, with

timely supervision and risk controls, stated the Politburo. China should stick

to its proactive fiscal policy and maintain a prudent and neutral monetary

policy, the Politburo said. The Politburo also stressed the importance of

high-quality growth in the country.

     LIQUIDITY: The PBOC injected CNY30 billion via its 7-day reverse repos on

Tuesday, according to the PBOC, without further explanations. This resulted in a

net injection of CNY30 billion as no reverse repos matured today. CFETS-ICAP's

money-market sentiment index closed at 81 on Monday, up from 74 on Friday.

     MONEY MARKET RATES: The 7-day repo average rose to 2.9875% from 2.9651% on

Monday, after PBOC's injection of net CNY30 billion in 7-day reverse. The

overnight repo average dropped to 2.7567% from Monday's 2.7924%.

     YUAN: The yuan fell against the U.S. dollar after PBOC set a weaker daily

fixing. The yuan fell 0.19% to 6.3162 against the U.S. unit, compared with the

official closing price of 6.3044 yesterday. The People's Bank of China set the

yuan central parity rate at 6.3229 on Tuesday, weaker than last Monday's 6.3034,

marking the fifth consecutive trading day that the central bank has set a weaker

fixing.

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

3.5825%, down from the previous close of 3.6000%, according to Wind Information.

     STOCKS: Shares were up in Shanghai, led higher by the approaching RRR cut

and the fact that A-shares will be soon included in the MSCI. The benchmark

Shanghai Composite Index was 1.99% higher at 3,128.93. Hong Kong's Hang Seng

Index was up 1.12% to 30,591.85.

     FROM THE PRESS: The PBOC's RRR cut earlier this month confirms that

monetary policy has been slightly adjusted to a neutral status or even

neutral-leaning loose status, China Securities Journal reported, even though it

allowed the use of capital released by the cut to replace banks' borrowing from

the central bank. As the overall monetary policy is still prudent and neutral in

order to avoid overleveraging in the financial sector, money supply will not be

too loose - though this year's liquidity could be better than last year.

Liquidity in the market has been very tight recently, partly due to the peak of

tax payments. The PBOC also drained a total CNY570 billion liquidity via open

market operations in the four weeks before last week, the newspaper said. As the

RRR cut will be effective as of Wednesday and fiscal expense will increase at

the end of this month, the tightness of money supply will ease.

     Rules regulating illegal financing will be one of China's main regulatory

tasks this year, Economic Information Daily reported, citing Chinese officials.

The rules would further define illegal financing, list specific responsibilities

for regulators, and strengthen supervision on illegal financing. China's illegal

financing cases were down 16.5%, and the amount of money involved in such cases

dropped 42.3% in the first quarter, according to the regulatory body (led by the

CBRC) which is responsible for supervising illegal financing. Illegal financing

was found in almost all industries, with fintech, property and agriculture

sectors seeing the most of it, the newspaper said.                  ***Comments:

A key task for the PBOC will be to clamp down on illegal financing, especially

in fintech, PBOC Governor Yi Gang said in Washington last week. More regulations

on illegal financing will be introduced this year to reduce risks to the overall

financial and economic systems.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com

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