MNI China Daily Summary: Tuesday, October 10

     TOP NEWS: China may beat its 6.5% economic growth target this year, Ning

Jizhe, director of the National Bureau of Statistics, told reporters in Beijing

on Tuesday. The economy is on a solid trajectory with "very good" employment,

lower-than-expected inflation and an overall improved environment, Ning said.

Last month's PMI reading, which was released on the Saturday before the

week-long National Day holiday, was 52.4, the highest since May 2012 and a broad

reflection of the country's prosperity, Ning said. The bureau is due to release

industrial data next week.    

     LIQUIDITY: The People's Bank of China injected CNY40 billion in seven-day

reverse repos on Tuesday. This resulted in no net injection or drain of

liquidity for the day, as a total of CNY40 billion in reverse repos matured. A

total of CNY100 billion in reverse repos and CNY84 billion in Medium-term

Lending Facility instruments will mature this week. The CFETS-ICAP money-market

sentiment index ended at 63 on Monday, down from 77 at the previous close on

Sept. 30. The lower the reading, the better the liquidity conditions in the

interbank market.

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

at 3.0062%, compared with Monday's average of 2.9706%. The overnight repo

average was at 2.7414%, compared with Monday's 2.7648%.

     YUAN: The yuan was stronger against the U.S. dollar after the People's Bank

of China set the fixing rate stronger for the day. The yuan was last at 6.5941

against the U.S. unit, compared with the official closing price of 6.6285 on

Monday. The PBOC set the yuan central parity rate at 6.6273, 0.33% stronger than

Monday's 6.6493.

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

3.6221%, compared with the previous close of 3.6011%.

     STOCKS: Stocks rose, with the financial sector leading gains. The benchmark

Shanghai Composite Index closed up 0.26% at 3,382.99. Hong Kong's Hang Seng

Index was 0.49% higher at 28,466.49.

     FROM THE PRESS: Risk controls in the banking sector should not only focus

on illegal transactions but also optimize management structures and enhance

regulatory coordination to support the underlying principle of avoiding systemic

risks, the Financial News, a journal run by the People's Bank of China, said in

a commentary on Tuesday. As restrictions on interbank and wealth management

businesses have been tightened, interbank assets and liabilities at the end of

August had shrunk on an annualized basis by 13.8% and 1.6%, respectively, to

CNY3.2 trillion and CNY1.4 trillion, the commentary noted. Regulators need to

improve their capacity to prevent risks from innovative financial products as

well as prepare risk emergency plans, the commentary argued. Regulators should

also strengthen their communications and coordination, which was the purpose of

establishing the Financial Stability and Development Commission, the commentary

added. (Financial News)

     Short-term capital outflows are likely to occur again, as fluctuations in

cross-border capital flows are expected to increase, Guan Tao, former head of

the balance of payments division at the State Administration of Foreign Exchange

(SAFE) and now a research fellow with the Financial 40 Forum think tank, said in

a note published late Monday. According to international payment data released

by SAFE in September, private sector sentiment on the outlook for yuan

depreciation has started to rise, so if domestic and overseas economic

fundamentals show negative changes, such as a rise in the U.S dollar, capital

outflows will reappear, Guan warned. In addition, the deficit in services trade

now almost offsets the goods trade surplus, which means China's current account

surplus stands at only 1.2% of total GDP, the lowest level in 20 years, Guan

noted. This will reduce China's capacity to deal with short-term capital flow

shocks, he warned.

     Reforms should be pushed forward to maintain the healthy and stable growth

of the property market, the Financial News, a journal published by the People's

Bank of China, reported Tuesday. An increase in land supply is a more

fundamental measure that can be taken to achieve a balance of supply and demand

in the property market, rather than restrictions on house purchases and mortgage

loans, the report argued. The country needs to further promote the rental

housing market and reduce the addictive attraction of home ownership, the report

added. Other relevant reforms, including improving the household registration

system and better distribution of education and medical resources, also need to

be followed up. The high reliance of local governments on land sales for fiscal

revenue also needs to be resolved via fiscal and tax reform, the report said.

(Financial News)

     The statistical method for calculating GDP will be changed as of the third

quarter to include research expenditures, the 21st Century Business Herald

reported Tuesday. Research expenditures were previously classified as

intermediate costs. But the new method will add them as fixed-asset investments,

as some could bring economic improvements, the report said. The change will

increase the level of GDP, but is not expected to make a major difference in the

growth rate, the report noted. The National Bureau of Statistics will release

third-quarter GDP on Oct. 19. (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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