MNI China Daily Summary: Tuesday, November 21

     TOP NEWS: Sweeping new regulations targeting asset management products,

including banks' wealth management products, announced on Friday by the People's

Bank of China and other regulators are expected to have a negative near-term

impact on the bond market, with the containment of banks' off-balance sheet

businesses leading to weaker demand for bonds. Two core standards lie at the

heart of the new regulations: The first is a ban on banks or other financial

institutions from implicitly guaranteeing their AMPs and WMPs -- in other words,

the holders of AMPs and WMPs must now be prepared to shoulder the loss on such

products, rather than the banks and other financial institutions themselves. The

other core regulatory standard is a restriction on investment in non-standard

assets.

     RATES: The Ministry of Finance bought CNY590 million in five-year treasury

bills at a yield of 3.9196% in an auction. The yield was lower than 3.9650% for

the same bonds trading in the secondary market on Monday.

     LIQUIDITY: The People's Bank of China injected CNY130 billion in seven-day

reverse repos, CNY40 billion in 14-day reverse repos and CNY10 billion in 63-day

reverse repos via open-market operations on Tuesday. This resulted in a net

injection of CNY10 billion for the day, as a total of CNY170 billion in reverse

repos matured on Tuesday.

     RATES: Money market rates rose. The seven-day repo average was last at

2.9144%, higher than Monday's average of 2.8973%. The overnight repo average was

at 2.8338%, also higher than Monday's 2.8061%.

     YUAN: The yuan fell against the U.S. dollar after the People's Bank of

China set a weaker daily fixing. The yuan was last at 6.6362 against the U.S.

unit, compared with the official closing price of 6.6300 on Monday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.6356 on Tuesday,

weaker than Monday's 6.6271.

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

3.9600%, up from the previous close of 3.9525%, according to Wind, a financial

data provider.

     STOCKS: Stocks were up, led higher by shares of motorcycle manufacturers

and the financial sector. The benchmark Shanghai Composite Index closed up 0.53%

at 3,410.50. Hong Kong's Hang Seng Index was 1.10% higher at 29,582.13.

     FROM THE PRESS: China's macro-prudential policy will establish credit and

property prices as anchors to stabilize the financial cycle, the Financial News,

a journal of the People's Bank of China, reported Tuesday. In today's financial

situation, it is a challenge for the PBOC to achieve its goal of stability in

prices and the financial sector. Analysts say a "two pillars" framework --

monetary policy and macro-prudential policy -- will help guarantee proper

liquidity conditions, stabilize prices and output, curb price bubbles and

prevent systemic financial risks. Regulators need to coordinate the two pillars

to accommodate economic and financial cycles, the newspaper argued.(Financial

News)

     Banks' wealth management products will have longer durations, higher

thresholds of clients and lower leverage under draft guidelines issued by top

regulators, the 21st Century Business Herald reported Tuesday. The guidelines

mainly focus on implicit guarantees of payment, leverage, channel transactions,

multiple layers and capital pools. Mainstream wealth management products will be

divided into two categories: fixed-asset products and mixed mutual funds. Wealth

management products for high-level clients will be allowed to invest in

debt-to-equity swaps. Lower leverage will benefit the long-term growth of the

sector, the newspaper argued. Chinese banks have issued wealth management

products totaling CNY30 trillion, the report said. (21st Century Business

Herald)

     Mortgage rates for first-time home buyers in Beijing have risen 10% above

the benchmark interest rate as government controls on the property market have

continued to bite and credit from banks has shrunk, the Securities Daily

reported Tuesday. Some banks, with their credit quotas limited at the end of the

year, have even raised the rates by 40%. Even so, the approval procedure for

mortgages has been faster due to sluggish home sales in recent months, the

report said, citing unidentified people familiar with the information. In

October, the nationwide average mortgage rate was 5.3%, which was 8.2% above the

benchmark rate. Although the rise has slowed, the upward momentum remains

obvious, the newspaper said. (Securities Daily)

     In a measure of its economic efficiency, China can produce the same level

of output with less capital than the previous year for the first time in at

least a decade, Caixin Magazine reported on its website Tuesday. But as China is

still being pulled by competing needs -- economic growth, financial deleveraging

and social stability -- efficiency might again end up on the back burner, 

Michael Taylor, chief credit officer of Moody's Investors Service, was quoted as

saying in the report. Among the competing needs, reform and rebalancing are less

important, with the emphasis on growth and stability, Taylor said. (Caixin

Magazine)

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

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

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