MNI China Daily Summary: Tuesday, October 17

     TOPS NEWS: China's economic growth has not entered a "new cycle" and so the

country should continue its supply-side reforms and seek new growth engines, the

State Information Center's chief economist, Zhu Baoliang, said Tuesday in a

commentary in the 21st Century Business Herald. China's recent robust economic

growth was due to a stable program of infrastructure construction, Zhu said.

China needs to tackle four problems in the future, Zhu said: reforming

state-owned enterprises; establishing a long-term system for development of the

property sector; dealing with local government debt; and balancing the yuan

exchange rate. Monetary policy needs to be tight, Zhu said, and China needs to

continue deleveraging, strengthen controls of the property market and squeeze

speculative capital out of the market. At the same time, fiscal policy should

maintain a certain level of looseness, and local government debt risks should be

strictly limited, he argued. If the above issues are tackled within three to

five years, it would provide a beneficial environment for China's economic

restructuring, Zhu concluded. (21st Century Business Herald)

     TOP NEWS: The People's Bank of China injected CNY100 billion in seven-day

reverse repos and CNY90 billion in 14-day reverse repos via open-market

operations Tuesday. This resulted in a net injection of CNY130 billion for the

day, as a total of CNY60 billion in reverse repos matured on Tuesday. Tuesday

was the first trading day that the PBOC had made a net injection of liquidity

via open-market operations since Sept. 19. A total of CNY128 billion of

Medium-Term Lending Facility (MLF) instruments matured on Tuesday. Including the

maturing MLF loans, the PBOC injected a net of CNY2 billion into the banking

system today. The CFETS-ICAP money-market sentiment index ended at 40 on Monday,

up from 35 at Friday's close. The lower the reading, the better the liquidity

conditions in the interbank market.

     POLICY: The most likely outcome from China's 19th Communist Party Congress,

which starts Wednesday, is continuance of the economic policy status quo, with

the government sticking with high growth targets, gradually implementing

supply-side reforms and stabilizing debt levels, Fitch Ratings said in a report

on Tuesday. 

     DATA: China's fiscal spending growth softened in September as both local

and central governments approached quota limits on total spending for the year,

the Ministry of Finance said Monday. The MOF said fiscal spending grew 1.7%

year-on-year to CNY2.025 trillion in September, compared with an increase of

11.3% in September last year and a gain of 2.9% last month. It was the lowest

growth so far this year.

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

net CNY130 billion via open-market operations. The seven-day repo average was

last at 2.8858%, up from Monday's average of 2.8238%. The overnight repo average

was at 2.5613%, compared with Monday's 2.5442%.

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

of China set a weaker daily fixing. The yuan was last at 6.6145 against the U.S.

unit, dropping 0.35% compared with the official closing price of 6.5912 on

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

U.S. dollar at 6.5883 Tuesday, weaker than Monday's 6.5839. 

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

3.6840%, up from the previous close of 3.6632%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by the agricultural and railway

transportation sectors. The benchmark Shanghai Composite Index closed down 0.19%

at 3,372.04. Hong Kong's Hang Seng Index was 0.05% higher at 28,706.54. 

     FROM THE PRESS: The yuan central parity in the fourth quarter will

fluctuate between CNY6.4 to CNY6.8 to the dollar, the Securities Daily reported

Tuesday, citing the prediction by China Communications Bank Chief Economist Lian

Ping. Lian said the yuan exchange rate is unlikely appreciate or depreciate more

than 10%, but will probably periodically fluctuate in both directions. Huang

Zhilong, director of the macro-economy center at the Suning Financial Research

Institute, told the newspaper that the value of the yuan depends on the central

bank's judgment on the exchange rate outlook as well as China's economic growth

outlook. Huang said the chance for China's economy to drop is not large and so

the economy can support yuan stability. (Securities Daily)

     It is time for the Chinese government to officially authorize the creation

of real estate investment trusts (REITS), the Economic Information Daily said

Tuesday in a front-page article. The China Securities Regulatory Commission is

speeding up the development of policies and regulations to allow for the launch

of REITS in China. With some experts predicting that one-third of China's

population could become housing renters in coming years, and the government

encouraging the development of a rental market to satisfy housing demand and

help keep a lid on housing prices, REITs would help meet the demand for

investment to fund rental housing, the newspaper argued. (Economic Information

Daily)

     The development of asset management companies in China has great potential,

the China Securities Journal reported. Banks' bad-loan ratios are expected to

increase steadily, raising the value of the market for managing these bad assets

to more than CNY1 trillion. So far, 60 local-level asset management companies

have been established, mostly controlled by local governments because of their

high profits and because of their need for risk controls. But private and listed

companies as well as state-owned institutions are actively investing in asset

management companies, and experts predict that the room for those companies to

participate in the market is still large, the newspaper said. (China Securities

Journal)

--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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