MNI China Daily Summary: Friday, January 3

     BEIJING (MNI) - POLICY: The People's Bank of China (PBOC) should provide

liquidity through adjusting the reserve requirement ratio (RRR) instead of

expanding its balance sheet, according to an article by officials from the

central bank. China's RRR is still relatively high, with significant room for

adjustment and strong operability, said Ruan Jianhong and Huang Jianyang, who

both work with the Financial Survey and Statistics Department of the PBOC, in an

article published in the December issue of China Bond.

     POLICY: China sold CNY4.36 trillion local government bonds last year,

including CNY907.4 billion in new general bonds and CNY2.15 trillion

special-purpose bonds, the Ministry of Finance said on its website today.

     LIQUIDITY: The PBOC skipped open market operations, resulting in a net

drain of CNY150 billion given the same amount of reverse repos matured,

according to Wind Information. Total liquidity in the banking system is at a

relatively high level, enough to offset the maturity of reverse repos, the PBOC

said on its website.

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

institutions (DR007) rose to 2.0189% from Thursday's close of 1.9874%, Wind

Information showed. The overnight repo average fell to 1.1452% from Thursday's

1.3830%.

     YUAN: The currency weakened to 6.9716 against the dollar from Thursday's

6.9631 close. PBOC set the dollar-yuan central parity rate higher at 6.9681,

compared with Thursday's 6.9614.

     BONDS: The yield on 10-year China Government Bonds was last at 3.1700%,

down from Thursday's close of 3.1725, according to Wind Information.

     STOCKS: The Shanghai Composite Index edged down 0.05% to 3,083.79. Hong

Kong's Hang Seng Index lost 0.32% to 28,451.50.

     FROM THE PRESS: Any future implementation of the phase one trade deal

between China and the U.S. may offer a short respite from trade conflicts but

leave the main economic divergences unsolved, the Global Times said in an

editorial late Thursday. The trade deal may be seen as the starting point for

the two biggest powers to seek boundaries for their behaviours and interests,

the newspaper said. China should adjust its actions and policies as the U.S. had

labelled China as a competitor instead of a friend, Global Times added.

     China's 2019 gross domestic product is expected to approach CNY100 trillion

and average US$10,000 per capita, the China Securities Daily reported citing

analysts. Chinese economy has good momentum with technological progress and

improved production efficiency, the newspaper said.

     China's bond market may continue to tumble, as the upcoming reserve

requirement ratio cut may fail to stimulate and a large number of new local

government special bonds may disrupt the market, the China Securities Journal

reported citing analysts. The scheduled RRR cut next Monday is in line with

market expectations and the market had already reacted to it in advance, the

newspaper said citing Zhou Guannan, chief fixed income analyst at Huachuang

Securities. Meanwhile, the issuance of special bonds could reach as much as

CNY700 billion to 800 billion in January, the newspaper said citing a CICC

report.

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

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

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