MNI China Daily Summary: Tuesday, March 20

     TOP NEWS: In what was seen as a very nationalistic speech Tuesday, China's

President Xi Jinping stressed the importance of Communist Party leadership in

all aspects. Xi also expressed gratitude for his second term as president in the

speech, which was wrapping up the two-week meeting of the country's legislature.

"Only those who are threats to others will see others as a threat to them," Xi

said, without specifying the country whose criticism he was referring to. In his

speech, Xi also noted the influence that his pet project, One Belt One Road, has

had on China's development, and stated that China's clampdown on corruption will

continue.

     TOP NEWS: China's Premier Li Keqiang took questions from reporters at a

press conference following the two-week National People's Congress concluded on

Tuesday. Li said China will reduce overall tariffs on imports, end the practice

of seeking technology transfer as conditions of foreign investment, and seek

better protection over intellectual property. China sees its excessive trade

surplus as unsustainable, and is rebalancing trade with other nations, he said.

     DATA: China banks were net sellers of foreign exchange to clients in

February, 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 sold a net CNY10 billion to clients in February,

compared with a net purchase of CNY14.9 billion in January. "Supply and demand

have remained generally balanced," SAFE said on its official website.

     ANALYSIS: China's newly-appointed Vice Premier Liu He will likely take

charge of pushing for the opening-up of China's markets, while implementing

reform to facilitate a campaign to root out dangerous elements in the sprawling

finance industry, MNI analysis concluded. Liu has long advocated for structural

reform. Supply-side reform, which was aimed at shedding China's industrial

overcapacity, led to a rebound in China's total productivity.  

     SOURCES: Yi Gang, the newly-appointed governor of the People's Bank of

China, will likely push for market-based currency reform to help tackling the

structural issues in China's financial system, multiple sources close to the

central bank told MNI. "He was a close ally of then-Governor Zhou Xiaochuan,

which makes him a perfect successor," an official at the PBOC told MNI. Yi's

extended experience in managing forex will allow him to make further progress

over the yuan's expansion into international markets, the official said. 

     LIQUIDITY: PBOC skipped its open market operations on Tuesday, stating that

the liquidity condition is at a "relatively high" level, which can absorb the

impact of maturing reverse repo. This resulted in a net drain of CNY40 billion,

as a total of CNY40 billion in reverse repo matures today. CFETS-ICAP's

money-market sentiment index closed at 43 on Monday, up from 36 on Friday

     MONEY MARKET RATES: The average 7-day repo rates rose to 2.8275% from

2.8186% Monday, after the PBOC net drained CNY40 billion via its open-market

operations. The overnight repo average was slightly down to 2.5403% from

Monday's 2.5405%.

     YUAN: The yuan gained against the U.S. dollar after PBOC set a stronger

daily fixing. The yuan rose 0.02% to 6.3298 against the U.S. unit, compared with

the official closing price of 6.3322 yesterday. The People's Bank of China set

the yuan central parity rate vs the U.S. dollar at 6.3246 on Tuesday, stronger

than Monday's 6.3320. 

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

3.7900%, up from the previous close of 3.8100%, according to Wind Information.

     STOCKS: Shares rose in Shanghai, led by shares of coal gas companies, with

Foshan Gas up close to the daily-limit 10%. The benchmark Shanghai Composite

Index closed 0.35% higher at 3,290.64. Hong Kong's Hang Seng Index gained 0.12%

to 31,551.98.

     FROM THE PRESS: China's monetary policy will become more flexible to ensure

abundant, but not excessive, liquidity, reported China Securities Journal,

citing Xu Nuojin, head of Zhengzhou city division of PBOC. China did not set

goals for M2 or social financing growth this year as it is still reining in

financial risks. Financial institutions should aim to control financial risks

and adjust their expectations for future growth, as their businesses are

increasingly included into the framework of macro-prudential assessment.

     Pressure on the PBOC to increase its benchmark interest rate is increasing

as global monetary policy normalises and China's inflation climbs, China

Securities Journal reported, citing market insiders. Whether the benchmark

interest rate will be adjusted still depends on China's economic fundamentals.

Changes in the interest rate will have limited impact, as they will likely not

be large. Liquidity is not as tight as last year, and fluctuations in the money

market interest rate are expected to slow.

     Property controls will not be loosened if the establishment and reform of

the long-term property system does not have an impact or if people's

accommodation needs have still not been met, said Economic Information Daily in

a commentary on Tuesday. The central government and local governments are still

diversifying their property policies across different cities to target property

bubbles and rein in high housing prices in some cities. Tier-1 property markets

will continue see tight controls, will likely not see big changes in the short

term. Shanty-town renovation projects, which are set to add 5.8 million housing

units this year, will buoy property investment growth this year. 

--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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