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TOP NEWS: Bonds issued by Chinese public finance companies, including some
transformed from local government financing vehicles (LGFVs) and local
government rail companies, will become a major issuer class in international
bond market as they seek to diversify their funding sources for future
infrastructure projects, a Moody's analyst said Tuesday. Public finance issuers,
which are mainly local governments and state-owned companies carrying the
mandate of local governments to finance major construction projects, are
projected to be more active in overseas market given the simplified regulatory
process to issue offshore bonds and their massive funding needs, Ivan Chung,
head of Moody's Greater China Credit Research and Analysis, said at a credit
outlook conference here co-hosted by Moody's Investors Service and China
Chengxin International Credit Rating Corporation. The move is expected to offer
more diverse investment opportunities to foreign investors.
RATES: The Ministry of Finance reopened and sold CNY26 billion in 5-year
government bonds at a yield of 3.8605% in an auction on Wednesday. The yield was
lower than the rate of 3.9195% that bonds with the same maturity fetched in the
secondary market on Tuesday. The bonds were first auctioned on Oct.19 with a
coupon of 3.73%.
RATES: Money market rates were up. The seven-day repo average was last at
2.9235%, up from Tuesday's average of 2.9108%. The overnight repo average was at
2.8143%, higher than Tuesday's 2.7510%.
LIQUIDITY: The People's Bank of China injected CNY70 billion in seven-day
reverse repos and CNY60 billion in 28-day reverse repos via open-market
operations. This resulted in a net injection of CNY60 billion for the day, as a
total of CNY70 billion in reverse repos mature on Wednesday. This is the third
consecutive trading day that the PBOC has injected liquidity into the banking
system via its OMOs.
YUAN: The yuan was stronger against the U.S. dollar on Wednesday even
though the People's Bank of China set a weaker fixing rate for the day. The yuan
was last at 6.6176 against the U.S. unit after opening at 6.6245, compared with
the official closing price of 6.6212 on Tuesday. The PBOC set the yuan central
parity rate at 6.6251, weaker than Tuesday's 6.6162. The PBOC has set the parity
weaker for 12 of the last 13 trading days.
BONDS: The yield on benchmark 10-year China government bonds was last at
3.9350%, up from the previous close of 3.9300%.
STOCKS: Mainland stocks were up, led higher by shares of airlines and
banks. The benchmark Shanghai Composite Index closed up 0.68% at 3,303.04. Hong
Kong's Hang Seng Index was 0.36% higher at 28,896.46.
FROM THE PRESS: The concentration of property developers is expected to
increase next year as sales slow down and fund-raising gets harder, the China
Securities Journal reported Wednesday. Property sales are expected to decelerate
next year, which will pressure smaller property companies, the report said. The
leading companies will ensure their growth through mergers and acquisitions,
with the top 10 companies taking a 60% market share, the report said. There will
be many uncertainties in the property market outlook next year, but a sharp
decline is not possible, the report argued, adding that restrictions on
mortgages and purchases will continue to have their main impact on larger Tier 1
and Tier 2 cities. (China Securities Journal)
China's fiscal deficit will remain below 3% of GDP in 2018 while issuance
of special local government bonds will expand, the 21st Century Business Herald
reported Wednesday, citing officials and analysts. Fiscal policy needs to be
proactive to offset the impact of corporate deleveraging and a slowdown in
household lending, the report said. Policy banks will continue to support
infrastructure investment and public-private partnerships will play a positive
role. The issuance of special local government bonds rose to CNY800 billion this
year from CNY400 billion in 2016. The growth of fixed asset investment in 2018
is predicted to be in a range of 7% to 8%, even approaching 10% if local
governments are active, compared with around an 8% increase this year, the
report said. (21st Century Business Herald)
Tight interbank liquidity will be normal, at least until Chinese New Year,
due to restrictions on interbank and off-balance-sheet transactions and
expectations of Federal Reserve rate hikes, the China Securities Journal
reported Wednesday citing Yin Jianfeng, vice-director of the National
Institution for Finance and Development, an official agency run by the Chinese
Academy of Social Sciences. The current excessively high required reserve ratio
has resulted in large commercial bank liabilities being held at the central
bank, requiring the People's Bank of China to inject liquidity into the
interbank market, Yin argued. A RRR cut would be the basic solution to the
liquidity problem, he said. (China Securities Journal)
Chinese regulators are resolute in their determination to tighten oversight
of the asset-management sector, even though some financial institutions have
reacted strongly and asked for a relaxing of proposed regulations, Caixin
magazine reported Wednesday, citing people with knowledge of the situation.
Regulators are determined to tame the country's $15 trillion asset-management
sector to rein in financial risks, Caixin said. Authorities will insist on
overarching rules and will brush aside resistance in the market, Caixin said.
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