MNI China Daily Summary: Tuesday, January 27

     TOP NEWS: The People's Bank of China is likely to increase interest rates

for open market operations as the U.S. Fed is expected to increase its benchmark

interest rate in March, China Securities Journal reported. If the rate does

increase, it would not be by much -- likely 5 basis points. The impact of the

OMO interest rate hike will be limited, as it is largely factored in already.

China's monetary policy in the near future will remain prudent and neutral, the

newspaper said.

     DATA: China banks were net buyers of foreign exchange from their clients in

January for a second consecutive month, reflecting relatively balanced

cross-border capital flows, according to the latest figures from the State

Administration of Foreign Exchange. SAFE said Monday that Chinese banks bought a

net CNY14.9 billion from clients in January, compared with a net purchase of

CNY44.5 billion in December. "The supply and demand has remained generally

balanced at the beginning of 2018," SAFE said on its official website, citing

steadily rising forex reserves, balanced purchasing and selling of forex by

banks, and non-bank sectors' surplus in forex income and expenditures.

     LIQUIDITY: The PBOC skipped its Open Market Operations (OMO) on Tuesday,

stating on its website that liquidity in the banking system is at a "relatively

high" level as fiscal expenses are strong at the end of the month. Liquidity

conditions remain unchanged as no reverse repo matures today. CFETS-ICAP's

money-market sentiment index closed at 41 on Monday, up from 33 at Saturday's

close.

     RATES: Money market rates diverged after PBOC did not conduct open-market

operations. 

The 7-day repo average was last at 2.8905%, up from Monday's average of 2.8450%.

The overnight repo average was at 2.5431% compared with Monday's 2.5542%.

     YUAN: The yuan weakened slightly against the U.S. dollar after the People's

Bank of China set a stronger daily fixing. The yuan was last at 6.3075 against

the U.S. unit, rising 0.01% compared with the official closing price of 6.3070

yesterday. The PBOC set the yuan central parity rate vs the U.S. dollar at

6.3146 on Tuesday, stronger than Monday's 6.3378. Today is the third straight

trading day that the parity has been set stronger.

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

at 3.8300%, down from the previous close of 3.8500%, according to Wind.

     STOCKS: Stocks dipped in Shanghai, led by coal miner shares, with Yanzhou

Coal Mining Company Limited down more than 7%. The benchmark Shanghai Composite

Index closed down 1.14% at 3,291.53. Hong Kong's Hang Seng Index was down 0.44%

at 31,361.21.

     FROM THE PRESS: The yuan will continue to see two-way fluctuations in the

near future, reported China Securities Journal. The yuan closed higher at 6.3070

on Monday, continuing to readjust after the New Year holiday. Though the U.S.

dollar will continue be a key factor influencing the yuan exchange rate, the

market broadly believes the greenback does not have enough room for big gains.

Alongside China's resilient economic fundamentals and expectations for a stable

yuan, this means the yuan will maintain a stable status, the paper says.

     Chinese companies' outbound investment should not seek improvements in just

speed and volume, but also in quality, the official People's Daily reported.

China issued a few documents regulating outbound investment, including one

issued earlier this month that listed property, hotel, cinema, sports clubs,

weapon manufacturing and maintenance, cross-border water development and use,

and journalism and media as sensitive sectors in which the government would

control outbound investment. Ministry of Commerce official Bai Ming said that

China has been issuing more detailed regulations such as this one. China's

outbound investment in the first ten months this year would remain "abundant"

and "stable", he added. Unreasonable mergers and acquisitions, as well as

companies' transfers of assets abroad in the name of outbound investment, will

both continue to be curbed. The government will continue to ensure the legality

and authenticity of outbound investment.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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