MNI China Daily Summary: Friday, May 18

     TOPS NEWS: China and the U.S. are not likely to reach a quick agreement

given the widely different demands made by the two sides, so an escalating trade

war remains a possibility, two advisors to China's ministries told MNI in

exclusive interviews. China needs a few years to further expand its imports and

deepen opening-up, and it could take the country a decade to reach a balanced

trade, said Wang Haifeng, a director at the Chinese Academy of Macroeconomic

Research, which is affiliated with the National Development and Reform

Commission. Reports that China is caving in to the U.S. with a $200 billion

offer to reduce trade deficits are untrue, state researchers told MNI. 

     LIQUIDITY: The People's Bank of China skipped OMOs on Friday citing

tax-payment period had passed and current liquidity condition is at a

"relatively high" level, according to a statement on the central bank's website.

This left liquidity unchanged as no reverse repos matured today. The PBOC has

injected a total of CNY410 billion by OMOs this week, the biggest weekly net

injection since mid-April. CFETS-ICAP's money-market sentiment index closed at

34 on Thursday, down from 39 on Wednesday. 

     MONEY MARKET RATES: 7-day repo average dropped to 2.6952% from 2.7557%

Thursday, after the PBOC's inaction in OMO resulted in no change of liquidity

condition. The overnight repo average decreased to 2.5406% from Thursday's

2.5612%.

     YUAN: The yuan fell to 6.3681 against the U.S. dollar from Thursday's

closing of 6.3671. Earlier today, the PBOC set the yuan central parity rate at

6.3763 Friday, weaker than Thursday's 6.3679. The central bank has set the

fixing weaker for three trading days out of five this week.

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

3.7050%, down from the previous close of 3.7100, according to Wind Information.

     STOCKS: Shares rose in Shanghai, led by energy companies, with PetroChina

up by more than 7%. The benchmark Shanghai Composite Index closed 1.24% higher

at 3,193.30. Hong Kong's Hang Seng Index gained 0.62% to 31,133.22.

     FROM THE PRESS: Chinese Vice Premier Liu He and U.S. President Donald Trump

stressed the importance of China-U.S. relations and said efforts are needed for

further development in relations during their meeting in Washington, the

official People's Daily said. China is willing to adequately tackle economic and

trade issues with the U.S., the Daily reported citing Liu. Trump urged the two

nations' negotiation teams to resolve economic and trade issues, the Daily said.

China and the U.S. should strengthen cooperation in energy and manufacturing,

expand trade and market access of agricultural products, enhance the protection

of intellectual property, Trump said, according to the newspaper.

     The yuan may not fall much against the dollar as the rise of the dollar

index is expected to slow, China Securities Journal reported. While the dollar

hasn't necessarily peaked, the yuan has outperformed currencies other than the

dollar, the newspaper said citing unidentified analysts. U.S. growth lacks

further momentum, especially as the U.S. real interest rate rebounded again

recently, the journal reported citing Ming Ming, chief fixed-income analyst at

Citic Securities.

     China's leverage ratio is expected to further decline in the future,

Financial News reported. The future focus would be structural deleveraging of

sectors of the economy such as SOEs and controlling local government debt, the

newspaper said. Overall leverage level is still high now, especially the high

levels of debt held by SOEs, the newspaper said citing unidentified sources.

Deleveraging of SOEs may be accelerated as indicated by the recent emphasis on

the issue made by the government, Financial News said.

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

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

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