MNI China Daily Summary: Tuesday, October 31

     TOPS NEWS: China's economy is likely to grow stronger than market

expectations next year on strengthened outlooks for consumption and investment

in manufacturing and property, China International Capital Corp. said Monday.

Gross domestic product may expand by 6.9% in 2018, up from a prior estimate of

6.7% and much higher than the 6.4% market consensus, the state-owned investment

bank said in a report.

     TOP NEWS: The People's Bank of China injected CNY140 billion in seven-day

reverse repos, CNY60 billion in 14-day reverse repos and CNY100 billion in

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

injection of CNY80 billion for the day, as a total of CNY220 billion in reverse

repos matured on Tuesday. The PBOC has injected net liquidity in 11 of the last

13 trading days and left liquidity unchanged the other two. A total of CNY470

billion in reverse repos will mature the rest of this week, and a total of

CNY207 billion in Medium-term Lending Facility (MLF) loans will mature on

Friday. Today was the third consecutive day the PBOC has injected liquidity via

its new 63-day reverse repos, introduced last Friday.

     DATA: China's official purchasing managers' index for manufacturing,

jointly released by the China Federation of Logistics and Purchasing (CFLP) and

the National Bureau of Statistics (NBS), fell to 51.6 in October from 52.4 in

September, the agencies announced Tuesday. The October index fell more than

expected, with the MNI survey median forecast calling for a decline to 52.0. The

reading means that activity in the Chinese manufacturing sector continued to

rise, but at a slower pace than the month before.

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

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

last at 2.7976%, down from Monday's average of 2.9570%. The overnight repo

average was at 2.7817% compared with Monday's 2.7791%.

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

of China set a stronger daily fixing. The yuan was last at 6.6277 against the

U.S. unit, rising 0.30% compared with the official closing price of 6.6476 on

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

U.S. dollar at 6.6397 on Tuesday, stronger than Monday's 6.6487. The stronger

fixing today followed two straight trading days of weaker fixings. 

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

3.8850%, down from the previous close of 3.9050%, according to Wind, a financial

data provider.

     STOCKS: Stocks rose, led higher by the aviation freight and road freight

sectors. The benchmark Shanghai Composite Index closed up 0.09% at 3,393.34.

Hong Kong's Hang Seng Index was 0.01% higher at 28,339.18.

     FROM THE PRESS: Liquidity conditions in the interbank market are expected

to come under pressure in the short term as a large amount of the People's Bank

of China's monetary facilities mature, the China Securities Journal reported

Tuesday. Facilities worth about CNY1 trillion will mature this week, the

second-biggest weekly maturing amount this year. The PBOC needs to act to

contain potential risks, the report suggested. Tightness caused by structural

problems will be amplified because banks will be reluctant to lend at the end of

month, which will further push up money market rates, the report warned. Excess

reserve ratios of banks are still low and combined with negative factors at home

and abroad, liquidity conditions can be expected to remain tight for the rest of

this year, the report noted. (China Securities Journal)

     A rebound of the U.S. dollar will put pressure on the yuan exchange rate

and increase uncertainty over the yuan's volatility in the short term, a former

head of the balance-of-payments division of the State Administration of Foreign

Exchange (SAFE) predicted in comments cited by the Securities Times on Tuesday.

But China's economic performance, tight monetary policy and strict financial

regulation have provided a good base for a strong yuan, Guan Tao, now a research

fellow with the 40Forum think tank, told a Beijing financial conference on

Monday. Private consumption and services need to contribute more to the economy,

Guan argued. Monetary policy will be neutral or perhaps tighten, and financial

regulation will continue to be strengthened, which is likely to be the new

normal, Guan said. (Securities Times)

     Liquidity in the interbank market was ample and the yield curve for

government bonds was steep in the first three quarters this year, but trading

volume fell in both markets, the Financial News, a journal run the People's Bank

of China, reported Tuesday. As of the end of September, trading volume in the

interbank market had fallen 5.4% compared with the first three quarters of last

year to CNY191.8 trillion, mainly because interbank lending plummeted 35.4%

year-on-year to CNY18.9 trillion. Government bond rates rose at a slow pace in

the first three quarters, and trading volume plunged 18.9% from the same period

last year, to CNY29.9 trillion, as the economy performed well and the government

enforced stringent financial regulations, the report noted. (Financial News)

     Chinese banks performed well in the first three quarters this year, with

net profits continuing to grow and the ratio of nonperforming loans falling

further, the Securities Daily reported Tuesday. State-owned banks grew at a

steady pace, according to listed banks' reports. Industrial and Commercial Bank

of China was the biggest money maker, with its total net profit increasing 2.22%

compared with the first nine months of last year, to CNY229.09 billion. Net

profits of city commercial banks mostly grew by double digits in the period,

with the highest growth rate above 18%. But some banks were forced by regulators

to scale back their balance sheets, the newspaper said. (Securities Daily)

--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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