MNI China Daily Summary: Wednesday, October 11

     TOP NEWS: Foreign investment in the Chinese financial market is warming up

as yuan depreciation expectations have faded, the 21st Century Business Herald

reported Wednesday. Net investment flowing into mainland China from Hong Kong

through the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock

Connect totaled CNY7.68 billion on Monday, a record. The announcement of a

targeted reserve requirement ratio cut by the People's Bank of China and a jump

in the official manufacturing PMI also boosted foreign investor interest. As of

the end of August, foreign investors had put a total of CNY857.36 billion into

the Chinese bond market, a CNY15.9 billion increase from the end of July, as the

yuan rose 2% against the dollar in August. (21st Century Business Herald)

     RATES: The Ministry of Finance announced on its official website Wednesday

that it will soon issue $2 billion worth of U.S. dollar-denominated sovereign

bonds, consisting of $1 billion of five-year bonds and $1 billion of 10-year

bonds, in Hong Kong. The date of issuance will be announced in coming days, the

MOF said. The bonds will be traded on the Hong Kong Stock Exchange after the

issuance.

     LIQUIDITY: The People's Bank of China injected CNY20 billion in seven-day

reverse repos via open-market operations. This resulted in a net zero

injection/drain for the day, as a total of CNY20 billion in reverse repos

matured on the same day. The CFETS-ICAP money-market sentiment index ended at 41

on Tuesday, down significantly from 63 at Monday's close. The lower the reading,

the better the liquidity conditions in the interbank market.

     RATES: Money market rates fell. The seven-day repo average was last at

2.8904% on Wednesday, lower than Tuesday's average of 3.0099%. The overnight

repo average was at 2.7281%, lower than Tuesday's 2.7412%.

     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 6.5798 against the U.S.

unit, compared with the official closing price of 6.5861 on Tuesday. The PBOC

set the yuan central parity rate against the U.S. dollar at 6.5841 on Wednesday,

much stronger than Tuesday's 6.6273. The PBOC set the fixing stronger for the

second consecutive day. Today's fixing marks the biggest daily rise since June

1, and it followed comments by PBOC Governor Zhou Xiaochuan published in Caijing

magazine late Monday that China should continue to open up its economy,

including reforming its exchange-rate system and easing capital account

controls.

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

3.5378%, down from the previous close of 3.6270%, according to Wind, a financial

data provider.

     STOCKS: Stocks were up slightly, led higher by the alcoholic beverage and

furniture-making sectors. The benchmark Shanghai Composite Index was last up

0.16% at 3,388.28. Hong Kong's Hang Seng Index was 0.02% higher at 28,495.33.

     FROM THE PRESS: Reform related to the mixed ownership of state-owned

enterprises has reached a critical stage and is expected to make a breakthrough

in the fourth quarter this year, the China Securities Journal reported

Wednesday. The previous two rounds of SOE reform made progress in sectors

including electric power, petroleum, railways and military manufacturing, and a

new round is being prepared. Some provinces have set up special funds to support

the new SOE reform, which could attract trillions of yuan in private capital,

the newspaper said. The funds should also attract foreign capital, the report

suggested. (China Securities Journal)

     China's real estate industry is becoming more concentrated because of

strict government controls, the Financial News, a journal run the People's Bank

of China, reported Wednesday. In the first week of October, property market

sales volume in 33 main cities dropped 63% from a year earlier, the report said.

However, the performance of leading companies was unexpectedly good and they are

still expanding despite tight liquidity and heavy restrictions, the newspaper

noted. The sales volume for big real estate companies saw a large increase in

the first three quarters of the year due to low inventories, it added.

(Financial News)

     Production and prices of coal and steel in China have risen to record highs

as China's campaign to eliminate excess production capacity has continued, the

Economic Information Daily reported Wednesday. According to the National

Development and Reform Commission, China is cutting 50 million tons of

overcapacity in the steel industry and banning the production of low-quality

steel, which is the main reason for the robust performance of the steel market,

the newspaper said. As of the end of July, the coal industry had cut as much as

128 million tons of overcapacity, and supply and demand in the coal market had

essentially reached a balance, the newspaper said. (Economic Information Daily)

--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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