MNI China Daily Summary: Tuesday, November 28

     TOP NEWS: China should slow government-dominated investment to curb local

government debt, Bai Chongen, an academic and a member of the PBOC's Monetary

Policy Committee, said Tuesday during an economic forum sponsored by Caijing

magazine. The effectiveness of fiscal stimulation is decreasing, dragging down

overall economic efficiency and increasing debt levels in the process, Bai

noted. The current situation of balanced cross-border capital flows and a stable

yuan exchange rate have provided a chance for monetary policy to "break the

cycle," Bai argued, adding that he hoped the government's foreign exchange rate

policy could be more flexible, which he said would help improve the autonomy of

monetary policy.

     RATES: Money market rates were mixed. The seven-day repo average was last

at 2.8958%, higher than Monday's average of 2.8748%. The overnight repo average

was at 2.7817%, lower than Monday's 2.8087%.

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

reverse repos, CNY110 billion in 14-day reverse repos and CNY10 billion in

63-day reverse repos via open-market operations. This resulted in a net zero

injection/drain for the day, as a total of CNY250 billion in reverse repos

matured on Tuesday. 

     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 6.6022 against the U.S.

unit, compared with the official closing price of 6.5979 on Monday. The PBOC set

the yuan central parity rate against the U.S. dollar at 6.5944, weaker than

Monday's 6.5874.

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

3.9600%, down from the previous close of 3.9700%, according to Wind, a financial

data provider.

     STOCKS: Stocks were up, led higher by the steel sector. The benchmark

Shanghai Composite Index closed up 0.34% at 3,333.66. Hong Kong's Hang Seng

Index was 0.50% lower at 29,539.18.

     FROM THE PRESS: The yuan will continue its two-way fluctuation and

cross-border capital flows will tend to be balanced in the period ahead, the

Financial News, a journal run by the People's Bank of China, reported on its

front page Tuesday. As China continues to open up its financial markets,

economic growth remains solid and market expectations for one-way volatility of

the yuan fade, capital flows will establish stable momentum, the report argued.

From the end of May to early September this year, the yuan rose over 4,000 pips,

which greatly increased the credibility of China's yuan exchange rate policy but

also created challenges for export companies, the report noted. These companies

should pay attention to the management of their exchange rate risk, the report

suggested. (Financial News)

     The tight liquidity situation in the interbank market will ease this month

as the People's Bank of China continues its injections via open-market

operations at a flexible pace and because fiscal spending is expected to

increase, the Financial News, a journal run by the central bank, reported

Tuesday. The volatility of liquidity increased in the third quarter due to

seasonal and temporary reasons, but the PBOC has enhanced its communications

with the market and strengthened the fine-tuning of its policy. As a result, it

has maintained liquidity at a neutral and proper level, the report argued. The

central bank will continue to conduct seven-day, 14-day, 28-day and 63-day

reverse repo operations to guarantee the stability of the interbank market, the

report noted. (Financial News)

     Property market controls next year will focus on increasing housing supply,

the Economic Information Daily reported Tuesday. According to a meeting held in

Wuhan by the main regulators, including the People's Bank of China, smaller

Tier-3 and Tier-4 cities in the western and central regions of the country will

see stricter property market regulations since the markets in larger Tier-1 and

Tier-2 cities have gradually cooled down, the report said. The authorities will

tighten regulations, given households' leverage ratios are surging, the central

government's tolerance for an economic slowdown is increasing, and a long-term

mechanism for the property market is needed, the report noted. (Economic

Information Daily)

     The China Bank Regulatory Commission will tighten regulations on city

commercial banks to prevent liquidity and credit risks, the 21st Century

Business Herald reported Tuesday, citing Cao Yu, vice chairman of the CBRC.

These regional banks are struggling to obtain deposits, particularly when

regulators are cracking down on interbank transactions as part of their

deleveraging campaign, the report said. According to the CBRC, assets of city

commercial banks increased 24.5% year-on-year to CNY28.24 trillion at the end of

2016, or 8.7 percentage points higher than the banking sector average, while

their liabilities rose 25% to CNY26.4 trillion, the report said. (21st Century

Business Herald)

--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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