MNI China Daily Summary: Wednesday, May 2

     TOPS NEWS: China's currency yuan rose to the highest level in about a month

on a trade-weighted basis against the currencies of its major trading partners,

according to weekly data released by the People's Bank of China (PBOC). The

CFETS Weekly RMB Index, which measures the yuan relative to a basket of 24

currencies, increased 0.39% last week to 97.37. As of April 27, the yuan gauge

has recorded a 2.66% gain year-to-date, up from 94.85 on Dec 29, according to

MNI's calculations.

     DATA: China's manufacturing output expanded at a slightly faster pace,

according to April's Caixin PMI. Increase in total new work slowed amid renewed

decline in export sales. Staff numbers continued to fall, despite further rise

in backlogs. The most interesting point was that overall operating conditions

across China's manufacturing sector continued to improve in April. Uncertainty

in exports has increased significantly, and the dependence of the Chinese

economy on domestic demand is rising.

     LIQUIDITY: The PBOC issued CNY200 billion in 7-day reverse repos on

Wednesday, with the rate unchanged at 2.55%, the central bank said on its

website. That resulted in no changes to liquidity as the same amount of reverse

repos matured today. There will be a total of CNY380 billion reverse repos

maturing this week. CFETS-ICAP's money-market sentiment index closed at 38 on

Saturday, down from 48 on Friday. 

     MONEY MARKET RATES: 7-day repo average dropped 2.9360% from the 2.9863% on

Saturday, after PBOC left liquidity unchanged. The overnight repo average

decreased to 2.7085% from 2.7837% on Saturday.

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

daily fixing. The yuan fell to 6.3579 against the U.S. unit, compared with the

official closing price of 6.3439 yesterday. The PBOC set the yuan central parity

rate at 6.3670 Wednesday, weaker than the 6.3393 set before three-day holiday.

The central bank has set the fixing weaker for eight times in past nine trading

days, marking the biggest daily drop since Feb 9.

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

3.6750%, much higher than the previous close of 3.6350%, according to Wind

Information.

     STOCKS: Shares slightly dropped in Shanghai, led lower by information

technology companies on U.S. sanctions on Chinese tech companies. The benchmark

Shanghai Composite Index closed 0.03% lower at 3,081.18. Hong Kong's Hang Seng

Index declined 0.34% to 30,703.23.

     FROM THE PRESS: The financial sector should be regulated based on

regulatory goals instead of based on different sectors to offset regulatory

arbitrage, China Securities Journal reported citing Sun Guofeng, head of the

financial research institute of the PBOC. Three main factors cause financial

risks according to Sun: fragile liquidity in the banking system as the existence

of shadow banks conceals the real balance sheets of banks, overexpansion of

assets, boosted by shadow banks, bank loans supporting transactions of existing

assets, which can lead to asset bubbles, Sun said according to the Journal.

     The buffer time for financial institutions to transform and change their

WMP businesses according to the finalized WMP rules was extended to two years

and a half, longer than the market expected, 21st Century Business Herald

reported. The rules clearly define standardized and non-standardized WMP

businesses and show that regulators are trying to tackle risks triggered by

non-standardized financial products, the newspaper said citing an unidentified

WMP manager of a large Chinese securities company. Former PBOC official told the

newspaper the rules show financial regulators do not want public funds to be

invested in non-standardized businesses, which could bring more risks and

intensify the shadow banking problem.

     The property market cooled during the Labor Day holiday relative to the

period in the past years, Economic Information Daily reported. Various property

companies gave promotions for home purchasers yet failed to create a rebound,

the newspaper said. Data from Centaline Group show residential property

transactions in the largest tier-one cities dropped more than 50% y/y to 360

units during the holiday, while it was down around 30% in tier-two cities, the

newspaper said. The market is still sluggish although m/m growth of property

transactions has recently been rising in most cities, Zhang Dawei, chief analyst

of Centaline Group was cited as saying. ***Comments: The recent m/m rebound of

property sales, especially of residential homes, shows demand for housing is

still strong in China. However, with tight controls still in place current

market transactions can't truly reflect the real demand and supply.

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

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