MNI China Daily Summary: Wednesday, Nov. 1

     TOP NEWS: Activity in China's manufacturing sector was stable in October as

output growth eased to the lowest in four months but new orders rose slightly,

according to the latest Caixin Manufacturing Purchasing Managers' Index (PMI).

The headline manufacturing PMI stood at 51.0, unchanged from September, but

remained above the 50 break-even mark for the fifth consecutive month, according

to data compiled by IHS Markit for Caixin magazine.

     LIQUIDITY: The People's Bank of China injected CNY140 billion in seven-day

reverse repos, CNY40 billion in 14-day reverse repos and CNY60 billion in 63-day

reverse repos via open-market operations. This resulted in no net injection or

drain for the day, as a total of CNY240 billion in reverse repos matured on

Wednesday. The PBOC had added liquidity to the market each of the previous four

trading days.

     RATES: Money market rates were mixed. The seven-day repo average was last

at 2.9374% on Wednesday, higher than Tuesday's average of 2.8344%. The overnight

repo average was at 2.7406%, much lower than Tuesday's 2.8460%.

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

China set a stronger daily fixing. The yuan was last at 6.6195 against the U.S.

unit, compared with the official closing price of 6.6272 on Tuesday. The PBOC

set the yuan central parity rate against the U.S. dollar at 6.6300 on Wednesday,

much stronger than Tuesday's 6.6397. It was the largest daily rise in the fixing

since Oct. 11.

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

3.8550%, down from the previous close of 3.8800%, according to Wind, a financial

data provider.

     STOCKS: Stocks were up, led higher by the shares of state-owned

enterprises. The benchmark Shanghai Composite Index closed up 0.08% at 3,395.91.

Hong Kong's Hang Seng Index was 0.79% higher at 28,467.37.

     FROM THE PRESS: The default of Dandong Port Group's five-year corporate

bond on Monday has spooked the market, particularly when government bonds have

suffered a correction recently, the Shanghai Securities News reported Wednesday.

Dandong Port Group issued its CNY1 billion, five-year bond on Oct. 30, 2012, and

the default involves several banks and funds, the report said. With the yield on

10-year government bonds having recently surged to a three-year high of close to

4%, market participants have become cautious, creating selloff pressure on

corporate bonds, the report warned. (Shanghai Securities News)

     After the 19th Communist Party Congress, China's economic development will

focus on improving quality and efficiency while maintaining medium- to

high-speed growth, the Financial News reported Wednesday, citing Wang Yiming,

vice director of the Development Research Center under the State Council. The

demand for energy and mineral resources will peak as rising demand from new

industries is offset by slowing demand from old ones, Wang said, adding that

provincial-level revenue will continue to rise as urbanization deepens. China

will build up a modern economic system with improvements in supply-side quality

as a priority, Wang noted. (Financial News)

     Chinese systemic risks stem partly from the insufficient opening of the

financial sector so that market discipline cannot be implemented in an efficient

way, The Paper report Wednesday, citing Huang Yiping, an academic and a member

of the People's Bank of China's  Monetary Policy Committee. The Financial

Stability and Development Commission run by the State Council will work as a

coordinator for the process of opening up the financial market, Huang said. But

reform and opening need to be pushed forward together to prevent risks to

financial security, Huang suggested. (The Paper)

     China's foreign-exchange position won't see a big increase or decline this

year as the People's Bank of China has no reason to intervene when the yuan is

fluctuating in both directions against the U.S dollar, the China Securities

Journal reported Wednesday, citing E Yongjian, chief analyst with Bank of

Communications. The yuan came under obvious appreciation pressures from the

middle of August to the middle of September, as banks sold more foreign exchange

to clients, so the PBOC likely purchased dollars from the market during that

period to curb the rise, E said, adding the forex position turned positive in

September. There will be no significant appreciation pressures on the yuan for

the rest of this year, E predicted.

     The risk of debt and deflation should be considered in the process of

deleveraging, Xu Zhong, director of the People's Bank of China Research Bureau,

said recently in Shanghai, according to Netease Finance. Deleveraging should

move forward at a proper pace to avoid undue pressure on credit and investment,

Xu noted. The key to deleveraging at present is to deepen supply-side reform and

enhance restrictions on debt to improve productivity and the return on assets,

Xu stressed. (Netease Finance)

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

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

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