MNI China Daily Summary: Friday, December 22

     TOP NEWS: The moral hazard related to local government debt cannot be

stemmed, as China has no clear definition of local government bankruptcy, Xu

Zhong, head of the research department at the People's Bank of China, said at an

economic forum on Friday. The fiscal mismatch between local and central

governments has worsened the moral hazard related to the unlimited expansion of

central government debt, Xu noted. With no definition of "bankruptcy," the goal

of state-owned enterprise reform -- improving company governance -- will never

be achieved, Xu said.

     POLICY: The National Development and Reform Commission, the nation's top

economic planner, said China will largely lift restrictions on foreign

investment in some key sectors including the financial sector, CCTV reported on

Friday. The report also said China will prioritize the improvement of its

production capacity structure in 2018, with the NDRC taking measures to

facilitate high-level investment and implementing the "negative list" for

investment, the report said. (CCTV)

     RATES: Money market rates were lower on Friday after the PBOC drained a net

CNY80 billion from the banking system. The seven-day repo average was last at

2.7607%, down from Thursday's average of 2.8214%. The overnight repo average was

at 2.5691% compared with Thursday's 2.6103%.

     LIQUIDITY: The People's Bank of China skipped open-market operations on

Friday, saying that liquidity conditions in the banking system were at a

"relatively high" level, given an increase in fiscal spending toward the

year-end that hedge the impact of maturing reverse repos and push up the banking

system liquidity level. This resulted in a net drain of CNY80 billion for the

day, as a total of CNY80 billion in reverse repos matured on Friday. The PBOC 

injected a total of CNY200 billion into the banking system via its reverse repos

this week.

     YUAN: The yuan strengthened against the U.S. dollar on Friday even though

the People's Bank of China set a weaker daily fixing. The yuan was last at

6.5752 against the U.S. unit, a rise of 0.16% compared with the official closing

price of 6.5858 on Thursday. The People's Bank of China set the yuan central

parity rate against the U.S. dollar at 6.5821 on Friday, weaker than Thursday's

6.5795. The PBOC set the fixing weaker two out of the five trading days this

week.

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

3.8700%, down from the previous close of 3.9176%, according to Wind, a financial

data provider. 

     STOCKS: Stocks were down, led lower by the agricultural sector. The

benchmark Shanghai Composite Index closed down 0.09% at 3,297.06. Hong Kong's

Hang Seng Index was 0.33% higher at 29,462.85.

     FROM THE PRESS: China next year will mainly focus on proactive fiscal

policy, tight monetary policy and strengthened supervision, the Economic

Information Daily, a newspaper of the official Xinhua News Agency, reported

Friday. In a front-page analysis of this week's Central Economic Work

Conference, the newspaper said that the main theme of maintaining stability

while also advancing the economy was consistent with policies of the past five

years. However, China will change the pace and strength of macro-control, and

strengthen coordination between financial regulators, the report said. The

conference emphasized keeping a proactive fiscal policy, meaning that China's

fiscal deficit goal could be set at around 3%. The meeting released signals that

more bonds for special projects would be issued, mainly for environmental

protection and poverty reduction programs, which would support infrastructure

investment, the report said. The newspaper predicted that although monetary

policy changes in Europe and the United States could affect China's policy, the

country will not raise the benchmark interest rate because it is more concerned

with domestic factors. (Economic Information Daily)

     The People's Bank of China will work to implement a prudent and neutral

monetary policy, and maintain reasonable growth of credit and social financing,

the Financial News, a newspaper of the central bank, reported Friday. The PBOC

will also help create a higher-quality economy for China, the central bank said

in a statement after a meeting Thursday led by Zhou Xiaochuan, the bank's

governor. The meeting was organized to analyze conclusions from the Central

Economic Work Conference, held earlier in the week. Subjects included risk

controls and forestalling systemic financial risks. The PBOC said it would

advance financial reforms and further open up the financial sector, while also

promoting green development. (Financial News)

     Tight controls continue to weigh on the property sector, with hundreds of

failed land auctions in the last six months, the Securities Daily reported

Friday. According to data from Centaline Real Estate Research Center, auctions

of at least 261 parcels had failed so far in the second half of this year, with

111 in Tier-2 cities and 150 in the smaller Tier-3 and Tier-4 cities. The

failures were mainly because of a lack of bidders or because bidders' offered

prices were too low. The property market is cooling down and there are tight

controls on capital flowing into the sector, so property developers have become

less enthusiastic about acquiring land, analysts said. As the sector is expected

to cool further and developers' financing costs are expected to keep going up,

land auction failures will most likely also increase, especially in Tier-3 and

Tier-4 cities, where economic fundamentals are less favorable, the newspaper

argued. (Securities Daily)

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

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

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