MNI China Daily Summary: Wednesday, March 14

     TOP NEWS: China's economy maintained solid momentum in the first two months

of 2018, but the country needs more effort to consolidate the good performance,

Mao Shengyong, spokesman of the National Bureau of Statistics, said in a press

conference Wednesday. Although seasonal factors have impacted some indicators,

production, consumption and employment have all increased at a positive pace so

far this year, Mao said. 

     TOP NEWS: China's property market continued to cool in the first two months

of 2018 on government measures to curb a property bubble, but investment is

expected to extend its strong momentum with policy housing seen supporting much

better-than-expected property investment. Though sales slowed, the 4.1% growth

was still not negligible considering such a tight policy environment.

Government-led campaigns to advance shanty-town renovation and develop rental

property market will also continue to buoy the property market, especially

investment.

     DATA: Industrial output rose 7.2% y/y during the January-February period in

2018, higher than 6.2% in December last year and 6.3% during same period last

year, and beating market expectations of 6.2%, as reflected in the MNI survey.

Industrial output grew 0.57% m/m in the Jan-Feb period. The data indicates room

for strong industrial production this year.

     DATA: Fixed-asset investment increased 7.9% y/y during the Jan-Feb period

in 2018, higher than 7.2% in 2017 while lower than 8.9% during same period last

year; and much higher than market expectations of 7.0%. Fixed asset investment

grew 0.61% m/m over Jan-Feb 2018.

     DATA: Property investment saw significant y/y growth of 9.9%, up from 7.0%

growth over all of 2017, and the highest since the first two months of 2015,

when it was 10.4%. It was supported by a 12.3% increase in investment in

residential house development, compared with a 9.4% increase over 2017. Property

sales dropped 3.6 percentage points to 4.1% in the first two months.

     DATA: Infrastructure investment increased 16.1% during the Jan-Feb period,

which is high - but lower than 19.0% over all of last year and 27.3% during the

same period last year. Signs suggest that there will not be a significant drop

in infrastructure investment from last year.

     DATA: Retail sales rose by 9.7% y/y, lower than the 9.8% expectation in a

MNI survey. Rebounding by 0.3 percentage point from December, the growth

resulted in a total of CNY6.1082 trillion in sales. The growth was also 0.2

percentage point faster than the rate recorded in the same period last year.

     LIQUIDITY: The PBOC stated on its website Wednesday morning that it

injected CNY30 billion 7-day and CNY20 billion 28-day reverse repos, with rates

unchanged at 2.50% and 2.80%, respectively. The central bank said the operation

aimed to cushion the impact of tax payments and to keep liquidity conditions

reasonable and stable. This resulted in a net injection of CNY50 billion as no

reverse repo matures today. CFETS-ICAP's money-market sentiment index closed at

45 on Tuesday, down from 47 on Monday.

     MONEY MARKET RATES: The average 7-day repo rate declined to 2.8727% from

the 2.9078% on Tuesday, after the PBOC injected CNY50 billion via its

open-market operations. The overnight repo average dropped to 2.6228% from

Tuesday's 2.6445%.

     YUAN: The yuan gained against the U.S. dollar after the PBOC set a stronger

daily fixing. The yuan rose 0.08% to 6.3189 against the U.S. unit, compared with

the official closing price of 6.3294 yesterday. The PBOC set the yuan central

parity rate vs the U.S. dollar at 6.3205 on Wednesday, stronger than Tuesday's

6.3218. The central bank has set the fixing stronger for three straight days.

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

3.8500%, up from the previous close of 3.8400%, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led lower by computer companies, with

Dawning Information Industry down by more than 6%. The benchmark Shanghai

Composite Index closed down 0.57% at 3,291.38. Hong Kong's Hang Seng Index was

1.31% lower at 3,1186.18.

     FROM THE PRESS: Chinese banks are under pressure to raise funds to increase

their Core Capital Adequacy Ratio to meet assessment requirements, China

Securities Journal reported. Banks are turning to the stock market and issuing

convertible bonds for financing. Under strict financial regulations, Chinese

banks' off-balance-sheet businesses are now required to be on normal books.

Banks' negotiable certificates of deposit businesses are also reduced, causing

pressure on banks' balance sheet, according to experts.

     China should further advance the yuan's use in neighboring countries,

especially those aligned with its One Belt One Road initiative, Financial News

reported citing Yang Xiaoping, head of PBOC Kunming Division. China should

encourage domestic financial institutions to cooperate with banks to boost yuan

flow, News reported citing Yang. It should establish a currency trading center

in Yunnan province, the newspaper said citing Yang.

     China's financial regulation structure will be further improved, Securities

Times said in a commentary. With the merger of the banking and insurance

regulators, current problems regarding the regulation of new emerging areas can

be solved, as there will no longer be an overlap in roles. The PBOC will create

regulations and basic regulation framework, while the China Banking and

Insurance Regulatory Commission will implement related regulations.

     China's move to reform financial regulation regime will improve the

effectiveness of financial regulation, Xu Zhong, the Director General of the

Research Bureau of the People's Bank of China, said in an article published on

Caixin on Tuesday. China will merge the China Banking Regulatory Commission

(CBRC) and the China Insurance Regulatory Commission (CIRC) to form the new

China Banking and Insurance Regulatory Commission. The move, according to Xu, is

in accordance with the trend of all encompassing operations of financial

institutions. Ma Jun, the former Chief Economist of the PBOC's research bureau,

said the reform will help to avoid the policy signal conflicts among different

regulators, and will provide a better environment for the coordination of

monetary policy and macro prudential policies, the Securities Times reported

Tuesday.

--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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