MNI China Daily Summary: Tuesday, November 7

     TOPS NEWS: U.S. President Donald Trump on Monday reaffirmed his friendship

with Chinese President Xi Jinping but also signaled that his coming trade talks

with China could be contentious unless China agreed to "reciprocal" trade

concessions. Trump, speaking a a press conference in Tokyo alongside Japanese

Prime Minister Shinzo Abe during the first leg of his five-nation Asia-Pacific

tour, said in reply to a question on China that the United States would take

"very strong action" that would "happen very soon" against countries that didn't

agree on trade deals with the United States.

     POLICY: The Chinese government is betting that development of the

residential rental property market will mitigate the many serious challenges

facing the domestic property market while providing a boost to economic growth

in coming years, property market experts told MNI. With Xi and other officials

stressing their view that "houses are for living in, not for speculating on,"

the development of the rental housing sector may help provide a boost that is

expected to offset some of the negative impact of government policies meant to

curb housing price growth.

     DATA: China's current account surplus fell to $37.1 billion (CNY247.2

billion) at the end of the third quarter, the State Administration of Foreign

Exchange (SAFE) announced Monday, down 27.1% from $50.9 billion at the end of

the second quarter. SAFE said the capital and financial accounts deficit, which

includes net error and omission numbers, was also $37.1 billion, compared with a

$400 million deficit during the April-July period. The surplus for the consumer

goods trade was $121 billion in the third quarter, compared with $132.1 billion

in the second, while the deficit in the services trade was $68.1 billion,

compared with a $74.4 billion deficit in the second quarter.

     RATES: Money market rates were higher on Tuesday after the PBOC drained a

net of CNY80 billion via open-market operations. The seven-day repo average was

last at 2.7572%, compared with Monday's average of 2.7479%. The overnight repo

average was at 2.5394%, compared with Monday's 2.4593%.

     RATES: The People's Bank of China injected CNY80 billion in seven-day

reverse repos, CNY40 billion in 14-day reverse repos and CNY60 billion in 63-day

reverse repos via open-market operations Tuesday. The PBOC did not give a

further explanation of its operations this morning. This resulted in a net drain

of CNY80 billion for the day, as a total of CNY260 billion in reverse repos

matured on Tuesday. The CFETS-ICAP money-market sentiment index ended at 38 on

Monday, up from 30 at Friday's close. The lower the reading, the better the

liquidity conditions in the interbank market.

     YUAN: The yuan rose against the U.S. dollar on Tuesday after the People's

Bank of China set a stronger daily fixing. The yuan was last at 6.6252 against

the U.S. unit, rising 0.13% compared with the official closing price of 6.6339

on Monday. The People's Bank of China set the yuan central parity rate against

the U.S. dollar at 6.6216 Tuesday, stronger than Monday's 6.6247.

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

3.8925%, up from the previous close of 3.8650%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the agricultural and insurance sectors.

The benchmark Shanghai Composite Index closed up 0.75% at 3,413.57. Hong Kong's

Hang Seng Index was 1.34% higher at 28,979.87.

     FROM THE PRESS: China needs to deepen reform of and further open its

financial sector to promote the internationalization the yuan, China Banking

Regulatory Commission chief economist Ba Shusong wrote in a long article

published Tuesday by the Financial News, a newspaper supervised by the People's

Bank of China. Restrictions on securities investment and capital outflows should

be reduced, he said, while a new index measuring macroeconomic fundamentals

should be considered and introduced into the pricing of the yuan central parity

rate. He also proposed further expanding the Chinese financial market's

connections with overseas markets to provide higher-quality risk pricing

platforms and enhance the yuan's usability as an investment currency. New types

of investment instruments should be introduced for foreign investors, such as

new commodity, stock and currency derivatives and other risk management tools,

he noted. Ba stressed the restrictions on foreign investment entering China's

financial market need to be reduced so that more foreign competition can boost

the efficiency of Chinese financial institutions.

     China should institute a property tax, but the introduction should be

gradual so as not to cause too great a shock to the market, the Financial News

said in a commentary on Tuesday. The newspaper noted Chinese Finance Minister

Xiao Jie's comments that the government must analyze and interpret President Xi

Jinping's 19th Communist Party Congress Report that the creation and

implementation of a property tax should be advanced based on the principle of

"create the law first, fully authorize power to related regulators, and advance

step by step." Xiao said China should tax commercial and residential property

units based on their value, but at the same time reduce taxes on property

construction and sales transactions to create a modern property tax system.

(Financial News)

     A further tightening of regulation to control financial risks is expected

ahead, the Economic Information Daily, a newspaper under the official Xinhua

News Agency, reported Tuesday, citing unidentified experts. China would stick to

its "two-pillar macro-control framework of monetary policy and macro-prudential

policy," the experts told the newspaper, arguing financial regulators should

better coordinate their efforts to fill regulatory voids caused by new

cross-sector financial businesses. New regulations of the wealth management

sector and banks' wealth management businesses would soon be issued, given the

People's Bank of China is leading relevant regulators to study and work toward

creating a standardized rule to manage the wealth management sector, the experts

said. (Economic Information Daily)

     A deepening of reform is needed so China can speed up the process of

transforming itself into an innovative economy, Ma Mingjie, the deputy head of

the innovation development research department at the Development Research

Center of the State Council, told the 21st Century Business Herald in a report

published Tuesday. The relationship between the government and the market needs

to be clear to create fair competition and let market forces perform their

decisive function, Ma said. China also needs to further open up and participate

in international innovation networks, introduce global technology and talent to

China and at the same time "go abroad" to improve innovation, Ma added. (21st

Century Business Herald)

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

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

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