MNI China Daily Summary: Wednesday, March 7

     TOP NEWS: China will maintain a 'proactive' fiscal policy to support growth

even as it aims to limit the budget deficit, the Minister of Finance said. While

the deficit will be unchanged in cash terms from last year at CNY2.38 trillion,

China will still boost expenditure by CNY21 trillion, at the same time allowing

local government to raise more money to spend on projects like infrastructure,

Minister Xiao Jie said at a press conference in Beijing on Wednesday. Xiao also

said China is 'busily' drafting and perfecting its much-anticipated property tax

plan, which he said will help balance the distribution of wealth.

     LIQUIDITY: The PBOC injected CNY105.5 billion by 1-year Medium-term Lending

Facilities (MLF) loans on Wednesday with the rate unchanged at 3.25%. Neutral

effect on liquidity as the same amount of MLF loans maturing and no reverse repo

maturing. CFETS-ICAP's money-market sentiment index closed at 36 on Tuesday,

down from 44 at Monday's close.

     ANALYSIS: China's lowered deficit to GDP target for 2018, although

unexpected, does not suggest weakened fiscal support in 2018 and will not add

downward pressure to investments and GDP growth. Added together with the 2.6%

deficit figure, a broader deficit ratio will be closer 4.1% of GDP in 2018,

higher even than the 3.8% seen in 2017. However, the impact could be limited, as

the provinces in greater need of increased SPB issuance are not those with

quotas to spare.

     RATES: Money market rates fell after PBOC's net injection ended up zero on

Wednesday. The 7-day repo average was last at 2.8456%, down from Tuesday's

average of 2.8659%. The overnight repo average was at 2.5657% compared with

Tuesday's 2.5867%.

     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 6.3241 against the U.S.

unit, rising 0.23% compared with the official closing price of 6.3401 yesterday.

The People's Bank of China set the yuan central parity rate vs the U.S. dollar

at 6.3294 on Wednesday, stronger than Tuesday's 6.3431. This has been the second

day the central bank set the fixing stronger.

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

3.8350%, unchanged from the previous close, according to Wind.

     STOCKS: Stocks declined in Shanghai, led lower by property shares on the

property tax news from the Ministry of Finance officials, with Shenzhen

Worldunion down more than 3%. The benchmark Shanghai Composite Index closed down

0.55% at 3,271.67. Hong Kong's Hang Seng Index was down 0.89% at 30,238.97.

     FROM THE PRESS: China's yuan may gradually appreciate while remaining

stable in the long term, China Securities Journal said in a commentary

Wednesday. The yuan would fluctuate slightly in the short term on the dollar's

rebound, but China's resilient economy, prudent and neutral monetary policy, and

its management of market expectations would likely make the currency stable.

     China's evolving economic conditions make its previous practice of setting

annual M2 broad monetary-supply growth target obsolete, Securities Daily

reported citing Xiao Gang, former chairman of the China Securities Regulatory

Commission and now a member of the legislative advisory body CPPCC. Not having a

hard target for M2 doesn't equate tightening liquidity, Daily cited Xiao as

saying. The old way to measure M2 can't match China's new reality, including

changing technology and expanding financial sector, Daily said citing Xiao.

--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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