MNI China Daily Summary: Tuesday, May 15

     TOPS NEWS: The trade conflict between the two largest economies, in its

worst possible outcome, may slow China's growth by as much as 0.8 percentage

point, an economist with a leading Chinese think tank said. Should the two

nations deepen the row, engage in a tit-for-tat strategy and apply punitive

tariffs against each other's exports, the worst case of scenario may be that

China's trade surplus against the U.S. dropping $100 billion, Ha Jiming, a

senior fellow at the China Finance 40 Forum and former chief economist of China

International Capital Corporation Limited (CICC), said at a conference on

Saturday.

     ANALYSIS: China's major economic indicators for April presented a mixed

reality, with slower gains in consumer spending and investment contrasting with

a stronger industrial output, underpinning challenges must be overcome to

transit to a consumption-based model. With policymakers touting the importance

of boosting domestic demand, there will likely be further introductions of

measures to boost retail sales and counter the impact of a possible slowdown in

exports.

     ANALYSIS: China's real estate investment and sales both moderated in April

as the government took further measures to restrict the industry and ensure

financial stability. Investment in properties in the first four months eased to

10.3% from 10.4% in March. That was mainly supported by 0.9 percentage point

acceleration of investment increase in the residential real estate segment, as

urban renewal and subsidized housing initiatives by the government partly offset

reduction in private investment. Outlook of the property sector, contributing to

more than half of China's annual growth remains uncertain.

     LIQUIDITY: The People's Bank of China injected CNY100 and CNY80 billion in

7-day and 14-day reverse repos on Tuesday, with rates unchanged at 2.55% and

2.70%, to cushion the impact of tax payments and reserves payments, the central

bank said on its website. This resulted in a net injection of CNY180 billion as

no reverse repos matured today. CFETS-ICAP's money-market sentiment index closed

at 43 on Monday, up from 33 on Friday. 

     DATA: China's fiscal spending in April increased 8.2% from last year to

CNY1.47 trillion, compared with a 3.8% gain in the same period last year.

Spending by the central government increased 9.4% y/y in April to CNY292.7

billion, compared with a growth of 3% last year. Local government spending rose

7.8% to CNY1.18 trillion, compared with a 3.9% rise in the same period last

year. Total revenue gained 11% to CNY1.85 trillion in April from a year ago,

compared with an increase of 7.8% in the same period of 2017.

     DATA: Industrial output rose 7.0% y/y in April, well above the market

expectation of 6.5% as showed in a MNI survey. On a m/m basis, it grew 0.61%,

faster than 0.35% registered in March. Fixed-asset investment increased 7.0% y/y

during Jan-Apr period, falling short of 7.4% projected by the MNI survey.

Property investment rose 10.3% ytd in April. Though sliding from the 10.4%

growth in January-March, it's the second highest since the 10.5% ytd growth in

December 2014. Retail sales rose 9.4% y/y in April, much lower than the median

of 10.1% in the MNI survey. Surveyed urban unemployment rate was 4.9% in April,

lower than 5.1% in March and 5.0% last April.

     MONEY MARKET RATES: 7-day repo average rose to 2.7716% from 2.7237% Monday,

after the PBOC net injected CNY180 billion via open market operations (OMO). The

overnight repo average increased to 2.6545% from Monday's 2.5662%.

     YUAN: The yuan fell to 6.3500 against the U.S. dollar from Monday's closing

of 6.3368. Earlier today, the PBOC set the yuan central parity rate at 6.3486

Tuesday, weaker than Monday's 6.3345.

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

3.7100%, up from the previous close of 3.6950%, according to Wind Information.

     STOCKS: Shares rose in Shanghai, led by healthcare companies after MSCI

Inc. included some Chinese healthcare companies into its equity indexes.

Guangzhou Pharmaceutical Company Ltd. was up by the 10% daily-limit. The

benchmark Shanghai Composite Index closed up 0.57% to 3,192.12. Hong Kong's Hang

Seng Index declined 0.89% to 31,260.67.

     FROM THE PRESS: Despite recent corporate bond defaults, deleveraging should

advance, Securities Times said in a commentary. China taking the initiative to

deleverage could prevent systemic financial risks, the newspaper said. As China

has achieved success in its capacity cuts and inventory reduction, deleveraging

should not lag behind. The government must strengthen deleveraging especially in

the corporate sector, according to the newspaper. 

     Integrating the deposit interest rate and money market rate is the final

goal China should accomplish to make its interest rate system more market-based,

Financial News said. It would make PBOC's adjustment of market interest rates

more efficient, said the newspaper managed by the PBOC. The PBOC's Q1 monetary

policy report indicates that the central bank is making efforts to advance

interest rate reform, the newspaper said.

     The quality of China's public-private partnerships (PPPs) will be enhanced

as the government places further controls on the sector, Economic Information

Daily reported. As of April 23, 1,695 PPPs worth CNY1.8 trillion were cancelled

by local governments as China tackles potential risks in the segment, the Daily

said. There may likely be a new round of growth in PPPs as the government

promotes tourism and the opening-up of Hainan province, the newspaper said.

After the government's clamp down on illegal PPPs, projects will be more in line

with local governments' fiscal situations, the newspaper said, citing Zhuo Shi

at Chinese Academy of Fiscal Sciences.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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