MNI China Daily Summary: Wednesday, March 6

     POLICY: China will further open agriculture, mining, manufacturing and

service sectors to foreign investment, and allow foreign ownerships into more

areas, He Lifeng, head of the National Development and Reform Commission told

reporters Wednesday. China plans to shorten its foreign investment negative list

of areas restricting foreign investors, and foreign investors will enjoy greater

resources as well as quicker approval processes while investing in new energy,

advanced manufacturing, petrochemical and electronic information, said He.

     POLICY: There is a gap for a new batch of financial institutions that can

provide specialized services and products to support private and small

companies, Liu Shijin, a member of the Monetary Policy Committee of the People's

Bank of China told reporters. China's financial system, especially the banking

system, has mainly served state-owned and large enterprises, so they lack the

capability and tools to deal with private SME demand, Liu said.

     LIQUIDITY: The PBOC skipped open market operations, resulting in a net

drain of CNY60 billion due to the maturity of reverse repos, according to Wind

Information. Total liquidity in the banking system is high enough to offset the

maturity of reverse repos, said the PBOC.

     RATE: The 7-day weighted average interbank repo average rate for depository

institutions (DR007) decreased to 2.3931% from Tuesday's close of 2.5312%, Wind

Information showed. The overnight repo average decreased to 2.0701% from

Tuesday's 2.2666%.

     YUAN: Dollar-yuan strengthened to 6.7106 against the U.S. dollar from

Tuesday's close of 6.7038. The PBOC set the central parity rate at 6.7053 today,

compared with 6.6998 set on Tuesday.

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

3.226%, up 0.1 bps from the close Tuesday, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index rose 1.57% to 3,102.10. Hong

Kong's Hang Seng Index rose 0.26% to 29,037.60.

     FROM THE PRESS: China's government work report released on Tuesday

indicated both money supply and credit will continue to be loose this year, with

rate cuts likely, the China Securities Journal reported citing economists

including Ming Ming of Citic Securities. A targeted reduction of reserve ratios,

cuts to medium lending facility (MLF) and adjusting reverse repo policies may

also be used, the newspaper cited the economists saying.

     China will conduct bond swaps only for remaining legacy local government

debt and not for treating new issues, as some in the market speculated, China

Securities Journal reported citing Liu Shangxi, head of a research institute

under the Ministry of Finance. As of the end of January, legacy local government

debt issued under LGFV totalled CNY315 billion, the journal said.

     China's steep tax cuts, particularly lowering VAT to 13% from 16% for

manufacturing industry, will spur the economy, the Securities Times said in a

frontpage commentary Wednesday. As VAT is 39% of China's total tax revenue,

targeting VAT gets to the core of the issue, the newspaper said. China's

manufacturing needs the boost given declining labor supply, higher cost of

operations and funding pressure, it said, adding that cuts can stabilize

manufacturing and private investments.

     Some Chinese cities have begun to ease restrictions on home mortgages, the

21st Century Business Herald reports, citing interviews with bank managers in

cities including Hefei, one of the 16 under tight monitoring. Lenders began to

see a pick-up in liquidity in second half last year, with follow-through into

January, when money supply indicators largely exceeded expectations, the paper

said. Even as regulators keep a tight leash on housing markets, many cash-rich

banks chase after property projects for lack of good projects they can lend to,

the newspaper said.

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

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