MNI China Daily Summary: Wednesday, February 28

     TOPS NEWS: China should change its usual practice of using annual GDP

growth rates as core targets evaluating officials' performance, but instead use

them to help monitor the economy, said Ma Jun, former chief economist of the

People's Bank of China. The recommended measure can help rein in local

government borrowing, limit further increases in leveraging and prevent false

reporting by local officials, Ma said in a report emailed to MNI. He made the

remark at a conference in Tsinghua University, where he heads a financial

research office.

     DATA: China's manufacturing PMI index significantly softened to 50.3 in

February, the lowest since July 2016, compared with 51.3 in January and 51.6 in

December, and below the 51.1 median of an MNI survey. February was still the

19th consecutive month that manufacturing sentiment remained above 50, which

divides expansion and contraction. "The decline was mainly caused by the Chinese

New Year holidays, which this year fell in the middle of the month (Feb 15-21),

creating more impact than seen in the past years," said CFLP economist Chen

Zhongtao in an accompanying statement.

     LIQUIDITY: PBOC skipped its open market operation (OMO) for a second day.

The central bank stated on its website that the liquidity in the banking system

is "relatively high" as fiscal expenditures turn stronger at the month-end.

Liquidity remains unchanged as no reverse repo matures today. CFETS-ICAP's

money-market sentiment index closed at 46 on Tuesday, up from 41 at Monday's

close.

     RATES: Money market rates rose after PBOC skipped open-market operations. 

- 7-day repo average was last at 2.9912%, up from Tuesday's average of 2.8984%.

- The overnight repo average was at 2.9912% compared with Tuesday's 2.5426%

     YUAN: The yuan fell against the U.S. dollar after PBOC set a weaker daily

fixing. 

- Yuan last traded 6.3267 against the U.S. unit, dropping 0.15% compared with

the official closing price of 6.3064 yesterday 

- PBOC set the yuan central parity rate vs the dollar at 6.3294, weaker than

Tuesday's 6.3146. PBOC has set the fixing weaker for a first day after three

stronger fixings. 

***COMMENTS: Today's yuan fixing saw the biggest drop since Feb. 14. It came

less than a day after new U.S. Fed Chair Jerome Powell signaled a hawkish stance

at his first congressional testimony, which boosted the dollar. In the short

term, the dollar is likely to rebound from its recent low. As FX demand rises,

yuan may return to better reflecting the strength of China's economy.

     BONDS: Yield on benchmark 10-year China Government Bond was last at

3.8325%, down from the previous close of 3.8375%: Wind Information.

     STOCKS: Shares dropped in Shanghai, led by insurance companies on their

weak performance at the start of the year, with China Pacific Insurance Company

down more than 4%. The benchmark Shanghai Composite Index closed down 0.99% at

3,259.41. Hong Kong's Hang Seng Index was down 1.39% at 30,832.55.

     FROM THE PRESS: The strength of the Chinese currency yuan will be more

decided by the improvement of China's economy and less on the outlook of the

dollar, China Securities Journal said in a commentary. The yuan may be allowed

greater two-way fluctuation, the Journal said. The dollar may not decline much

further after losing 15% from its recent high, although returning to the

previous strength may be difficult, the newspaper said. 

***COMMENTS: State-owned press this week reemphasized that the PBOC may allow

more two-way fluctuation of the the yuan and is less preoccupied with stability.

In the short run, the yuan may be allowed to gain and its outlook will be

affected by non-dollar currencies, particularly the euro.

     China's economic growth may be above 6.5% this year and next year,

according to a forecast by Xiamen University and Economic Information Daily. A

slowdown cannot be ignored, especially considering falling domestic demand,

Daily said. Deleveraging and increasing risk controls remain the core of

government policies. 

***COMMENTS: At the annual National People's Congress starting next week, the

government is expected to announce its growth targets this year.

     PBOC on Tuesday announced new regulation on bonds which listed details

regarding payment and compensation in specific cases, according to Financial

News, the central bank's newspaper. This should boost banks' abilities to absorb

risks and protect investors' interests, Financial News said. These bonds can be

written down or swapped for equities, it said. The central bank stressed that

banks should reasonably and prudently make plans for the issuance of such bonds,

and ensure that funds raised are to serve the real economy, the newspaper said.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]