MNI China Daily Summary: Friday, February 1

     TRADE WAR: China and the U.S. have agreed to further strengthen cooperation

on intellectual property protection and technology transfer, Xinhua News Agency

reported today. And China will expand imports of US agricultural products,

energy products, industrial manufactured goods and service products, aiming to

promote a more balanced Sino-US trade. The latest trade talks in Washington have

achieved significant progress, and the two sides also confirmed the timetable

and roadmap for the next consultation, Xinhua said.

     POLICY: Moves by the People's Bank of China to boost lending by

recapitalising banks will have limited impact on credit expansion without more

fiscal stimulus and a partial rollback of rules imposed during a drive to limit

leverage, former central bank officials and government advisors told MNI.

     DATA: The Caixin China manufacturing PMI fell 1.4 to 48.3 in January, a

35-month low, in another sign that factory activities in China are slowing. New

orders, which indicates future activity level, fell for a second consecutive

month at a faster pace, mainly due to the sluggish domestic demand, Caixin said

in a statement today. However, new export orders edged into expansionary

territory, ending a 9-month decline and marking the highest level since April

2018. Many surveyed manufacturers noted that overseas demands have recovered,

due to the truce of Sino-U.S. trade war.

     LIQUIDITY: The PBOC injected CNY80 billion into the market via 14-day

reverse repos, adding liquidity for a third consecutive day, resulting in a net

injection of CNY80 billion as no reverse repos matured today, according to Wind

Information. The PBOC said today's OMO is to offset cash inputs, government

bonds issuance and other factors.

     POLICY: The People's Bank of China (PBOC) did not provide window guidance

on banks' credit levels, the Wallstreet CN said Friday. citing an unnamed source

in the central bank, combating market chatter suggesting the PBOC had ordered

banks to control the scale and pace of their credit growth.

     RATES: The 7-day weighted average interbank repo rate for depository

institutions (DR007) decreased to 2.7005% from Thursday's close of 2.7014, Wind

Information showed. The overnight repo average decreased to 2.0473% from

Thursday's 2.2290%. 

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

3.145%, up 1.5 bps from the close of 3.13% on Thursday, according to brokers.

     YUAN: The yuan fell against the dollar to 6.7391 from Thursday's close of

6.7055. The PBOC set the yuan's central parity rate against the dollar at 6.7081

today, down from the 6.7025 set on Thursday.

     STOCKS: The benchmark Shanghai Composite Index closed 1.30% higher at

2,618.23. Hong Kong's Hang Seng Index fell 0.04% to 27,930.74.

     FROM THE PRESS: There is no need for China to conduct QE at the moment,

said Sun Guofeng, head of the PBOC's Monetary Policy Department, the Securities

Daily reported today. Sun noted the essence of QE is that the monetary authority

improves the transmission of its monetary policy by purchasing assets in the

financial market. It works for countries whose financial system are dominated by

the financial market. However, China is a bank-led financial system and the

transmission of the monetary policy will rely on regulating banks' behaviour,

the newspaper reported.

--Sun also warned that if the PBOC purchases a large amount of CGBs in the

secondary market, it is equivalent to buying them directly in the primary

market, which could lead to a serious monetized deficit. In the past two

decades, China has experienced three inflations, all related to a monetized

deficit, Sun added.

     An additional $300 billion will likely flow into China's bond market by

2020 following the inclusion of CGBs into the Bloomberg Barclays Global

Aggregate Indices, Securities Daily said today, citing several institutions'

forecasts. By the end of 2018, China's bond market stood at CNY86 trillion, with

overseas investors holding nearly CNY1.8 trillion, a rise of 46% y/y, the

newspaper said.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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