MNI China Daily Summary: Tuesday, October 16

     TOP NEWS: China's September CPI came in at 2.5%, the highest monthly gain

since the 2.9% rise recorded in February. The gain was in line with the median

in an MNI survey of analysts. Higher food prices, especially fruit and

vegetables, are the main driver of the higher prices. PPI outpaced analyst

expectations, gaining 3.6% y/y, propped up by the gain in production materials

price.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMOs) Tuesday, leaving liquidity unchanged. No reverse repos matured, according

to Wind Information. The central bank said the level of liquidity in the banking

system is "relatively high", enough to absorb the impact from maturing Treasury

cash deposits at commercial banks, among other factors. The 7-day weighted

average interbank repo average rate for depository institutions (DR007)

decreased to 2.5814% from Monday's close of 2.6019%, Wind Information showed.

The overnight repo average decreased to 2.3531% from Monday's 2.3628%.

     YUAN: The yuan appreciated to 6.9198 against the U.S. dollar from Monday's

close of 6.9270. The PBOC set the yuan central parity rate stronger at 6.9119

after ten consecutive weaker fixings, compared with Monday's 6.9154.

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

3.5750%, down from the closing price of 3.59% on Monday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.85% lower at

2,546.33. Hong Kong's Hang Seng Index decreased 0.34% to 25358.48.

     FROM THE PRESS: Market expectations of efforts to stabilise the tumbling

stock market were supported by positive signals from recent speeches made by

heads of three major regulators -- PBOC, China Securities Regulatory Commission

(CSRC) and the Ministry of Finance -- said the Securities Daily in a front page

opinion piece published Tuesday. Steady monetary policy and proactive fiscal

policy are the driving forces for the ongoing deepening of capital market reform

and development, the newspaper said, noting that the complementary nature of

these policies require close cooperation from the three authorities. The finance

minister has promised to work on a larger scale of tax and fee reduction, while

the PBOC governor has confirmed that there is room for further monetary policy

adjustment. The CSRC chairman stated that he has met private equity

representatives and individual investors to discuss specific reform measures

this week, reported the Daily.

     Enterprises focusing on cutting overcapacity are to be exempted from the

land use tax and property tax when they suspend operations for restructuring,

according to new legislation released by the Ministry of Finance and the State

Administration of Taxation on Monday, Xinhua News reported. The new regulation

is in line with the country's supply-side reforms, which aims to encourage

companies to upgrade their production levels. These companies are not allowed to

enjoy the tax exemption policy for more than two years, as it will take effect

from the beginning of October till the end of 2020.

     State-owned enterprises (SOEs) acquiring privately owned listed companies

is normal market-oriented behaviour, and it is a market choice with mutual

benefits, the People's Daily said Tuesday, in response to recent worries that

SOEs may merge with or acquire private firms on a large scale amid ongoing stock

market turbulence. The increase or decrease of state-owned capital follows the

laws of a market economy and enterprise development, the newspaper said, citing

Peng Huagang, deputy secretary general of the State-owned Assets Supervision and

Administration Commission (SASAC). SASAC is opposed to different rules for

different forms of corporate ownership, and opposes the discriminatory treatment

of SOEs in the formulation of international rules, Peng emphasised.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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