MNI China Daily Summary: Tuesday, January 30

     TOPS NEWS: China faces a significant risk of a systemic financial crisis

because of the financial industry's complex structure and irregularities, said

Lou Jiwei, former finance minister and now chairman of National Council for

Social Security Fund, according to a statement on the council's website on

Monday. 

 - China's financial system has been severely distorted by numerous derivatives,

such as P2P, payday loans and fund pools, which has led to rising cost of

capital and limited growth of the real economy: Lou 

 - Many risks are hidden in China's financial channels and difficult to track:

Lou 

 - China must control these risks to prevent crisis: Lou 

***COMMENT: Lou is yet another high-profile official to lend his voice to the

widening campaign tackling widespread and little-understood financial dealings.

China is taking a calculated risk, as coercive measures will likely limit

growth.

     POLICY: A higher proportion of American companies doing business in China

are concerned with inconsistent regulatory interpretation and unclear laws, the

American Chamber of Commerce in China said at a press conference Tuesday. The

number stood at 60% last year, up from 58% in 2016. 

 - U.S. companies are more confident about China's economy as their profit grew

and view China's "new normal" growth rate as sustainable in the near future:

AmCham in its 2018 China Business Climate Survey Report. 

 - Nine percent less American companies feel they are unfairly treated in terms

of policies and enforcement, though the percentage is still high at 46% in 2017.

 - Fewer companies said they are less welcome than before, but the total was a

still large 75% last year, down from 81% in 2016.

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

stating on its website that the orderly use of Contingent Reserve Allowances

(CRA) and fiscal expenditure can absorb the effects of maturing reverse repos

and cash withdrawals. The statement made today used the same wording as

Monday's. 

 - Net drain of CNY240 billion today after same amount of reverse repos mature.

 - CFETS-ICAP money-market sentiment index closed at 41 yesterday, up from 35 at

Friday's close 

 - Benchmark 7-day deposit repo average fell to 2.7479% today from 2.9039% on

Monday.

     RATES: Money market rates were lower after the PBOC's inaction resulted in

a net drain of CNY240 billion via its open-market operations. 

- 7-day repo average was last at 2.8993%, down from Monday's average of 2.9039%.

- The overnight repo average was at 2.5256% compared with Monday's 2.5408%.

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

daily fixing. 

 - The yuan was last at 6.3353 against the U.S. unit, dropping 0.14% compared

with the official closing price of 6.3266 yesterday 

 - PBOC set the yuan central parity rate vs the U.S. dollar at 6.3312 on

Tuesday, weaker than Monday's 6.3267. Today was the first time that the central

bank set the rate weaker following seven trading days of stronger fixings.

     BONDS: The yield China's benchmark 10-year government bond was last at

3.9250%, down from the previous close of 3.9400%, according to Wind.

     STOCKS: Stocks fell in Shanghai, led by property shares, with Hainan Pearl

River Holdings Co. led the gain. The benchmark Shanghai Composite Index closed

down 0.99% at 3,488.01. Hong Kong's Hang Seng Index was 1.01% lower at

32,633.35.

     FROM THE PRESS: Many Chinese regional governments are ratcheting up

campaigns to tackle their mounting debt, the China securities Journal reported

citing meetings of local lawmakers. 

 - Regulatory pressure on local government debt will continue, while new and

stronger measures will be unveiled: Journal. 

 - Some regions imposed lifelong accountability on officials for borrowing:

Journal. 

 - Strict management of local debts will be an important task in laying the

foundations for preventing and resolving major risks: Journal. 

 ***COMMENT: As President Xi Jinping's top economic advisor Liu He mentioned in

Davos last week, curbing financial risks will be a priority task for the gov't

this year. Keeping a lid on local gov't debt burdens means central government

will tolerate slower growth this year.

     The yuan may be stable against the dollar in the immediate term while

maintaining a longer-term strength, the China Securities Journal said in a

report citing market participants. 

 - While the dollar index has slowed its pace of decline, the market expects a

weak dollar in the longer term. 

 - A possible March rate hike by the U.S. Federal Reserve and this week's U.S.

economic data releases have been factored in by the market, leaving little

support for the dollar, Journal said.

     The People's Bank of China (PBOC) will explore whether to include shadow

banking, real estate finance and internet finance in its macro prudential

policies framework, said Yi Gang, the deputy governor of the PBOC, in his

article published on China Finance. 

 - The central bank will also decide whether to include negotiable certificates

of deposit and "green credit" in macro prudential assessments tests. 

 - The PBOC will also improve macro prudential policies to better manage and

make counter-cyclical adjustments on cross-border capital, said Yi. 

 - The Bank will continue to support any weak links in China's economy and allow

banks to use qualified loans to micro and small-sized companies and green loans

as collateral in PBOC's operations. 

--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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