MNI China Daily Summary: Wednesday, February 7

     TOP NEWS: China's State Administration of Foreign Exchange stresses

deepening reform of foreign exchange management and securing stability of the FX

market. At the gathering to discuss key regulatory and management tasks for the

year ahead, SAFE said financial risks need to be strictly controlled, thus

cross-border capital flow need to be better managed and illegal FX activities

will be clamped down on.

     TOP NEWS: The People's Bank of China will maintain a prudent and neutral

monetary policy stance and further push forward the opening up of the financial

sector, a statement posted on the central bank's official website Tuesday said.

Following a meeting chaired by Yi Gang, the vice-governor of the central bank,

the PBOC also said it will keep the liquidity condition at a reasonable and

stable level, by using multiple instruments of monetary policy, adding that

credit and total social financing will grow at a proper pace.

     LIQUIDITY: The PBOC skipped its Open Market Operations (OMO) on Wednesday,

stating on its website that the liquidity in the banking system is "relatively

high" after a total of CNY120 billion was deposited by the Treasury in

commercial banks on the same day. Today was the tenth day that the central bank

has refrained from conducting OMOs. A net drain of CNY100 billion was seen after

the same amount of reverse repos matured. CFETS-ICAP's money-market sentiment

index closed at 41 on Tuesday, down from 46 at Wednesday's close.

     RATES: Money market rates rose after PBOC's inaction of open-market

operations resulted in CNY100 billion. The 7-day repo average was last at

2.7138%, up from Tuesday's average of 2.7130%, while the overnight repo average

was at 2.5639% compared with Tuesday's 2.5309%.

     RATES: China's Treasury deposited a total CNY120 billion in commercial

banks for three months at a rate of 4.5% on Wednesday, the People's Bank of

China said, lower than the 4.7% at the Jan 15 deposit.

     RATES: The Ministry of Finance sold CNY20 billion seven-year treasury bills

at a yield of 3.8062% via auction on Wednesday. The yield was much lower than

the 3.8803% for bonds with the same maturity sold in the secondary market on

Tuesday.

     RATES: The Ministry of Finance sold CNY20 billion in three-year treasury

bills at a yield of 3.5203% in an auction on Wednesday. The yield was much lower

than the 3.6236% from bonds with the same maturity sold in the secondary market

on Tuesday.

     YUAN: The yuan gained against the U.S. dollar after the People's Bank of

China set a stronger daily fixing. The yuan was last at 6.2582 against the U.S.

unit, rising 0.32% compared with the official closing price of 6.2783 yesterday.

The PBOC set the yuan central parity rate vs the U.S. dollar at 6.2882 on

Wednesday, stronger than Tuesday's 6.3072. The fixing has been set higher after

being weakened for two trading days.

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

3.8900%, up from the previous close of 3.8850%, according to Wind.

     STOCKS: Stocks dipped in Shanghai, led by property shares, with Greenland

Holdings down nearly 5.8%. The benchmark Shanghai Composite Index closed down

1.82% at 3,309.26. Hong Kong's Hang Seng Index was down 0.56% at 30,423.09.

     FROM THE PRESS: Chinese financial regulators' move to clamp down on

non-standard wealth management products will increase the need for asset-backed

securities in the market, reported 21st Century Business Herald on Wednesday. As

of Tuesday, outstanding ABS reached CNY1.07 trillion, more than 21 times the

total from three years ago. The reduction of credit quotas will also help ABS

continue growing this year. The real estate investment trusts subcategory saw

strong growth, as the Chinese government is campaigning to develop the housing

rental market.

     The impact of PBOC draining liquidity would be limited: market risks would

not be high, and liquidity before the Spring Festival would remain relatively

loose, reported Shanghai Securities News on Wednesday. Before the end of March,

only CNY170 billion reverse repos will mature, and CNY538.5 billion

medium-lending facilities are due in February and March. The PBOC is very likely

to maintain loose liquidity as previous years showed that financial

institutions' demand for money supply tends to increase before the Spring

Festival. Liquidity may not be too tight after the festival as cash is expected

to flow back - countering the negative effects caused by maturing reverse repos,

some maturing in contingent reserve arrangements, and pressure on financial

institutions to meet liquidity assessment requirements set by regulators.

     Chinese regulators are working to standardise public-private partnership

projects and enhance their quality, reported Economic Information Daily on

Wednesday. This followed notice of a drop in the number of projects and amount

of investments in the fourth round of PPP projects approved by the Ministry of

Finance. The ministry made public the fourth round of PPP pilot projects on

Tuesday: total 356, 120 less than the third round; total investment at CNY758.8

billion, CNY412 billion more than the previous round. Transportation came first

in investments, followed by city infrastructure and integrated city development,

the Daily said. This release soothed market concerns that PPPs would be paused

due to the government's frequent regulation announcements. Though the government

is trying to reorganize PPPs and tighten supervision, it still supports the

continued development of PPPs.

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

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

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