MNI China Daily Summary: Friday, November 2

     EXCLUSIVE: China is likely to cut taxes again in 2019 by at least as much

as this year's CNY1.3 trillion reductions, increasing government borrowing to as

much as 3% of GDP as it simplifies value-added tax (VAT) on business

transactions and reduces income taxes, top government researchers told MNI. 

     "Tax cuts next year won't be less than CNY1.3 trillion," Liu Shangxi, head

of the Chinese Academy of Fiscal Sciences (CAFS) under the Ministry of Finance

said. Finance Minister Liu Kun said Sept 27 he expected cuts in 2018 amounting

to CNY1.3 trillion.

     TOP NEWS: Chinese shares jumped after Thursday's phone call between the

U.S. and Chinese presidents raised the hope of a thaw in trade tensions. The

stock market was also fuelled by Bloomberg headlines stating that U.S. President

Trump is to ask his cabinet to draft a possible China trade deal. The Shanghai

Composite Index closed 2.70% higher at 2,676.48. Hong Kong's Hang Seng Index

increased 4.21% to 26,486.35.

     YUAN: The weakening yuan, which has been hovering below the key mark 7 for

a month, appreciated to 6.8870 as of 6:25 p.m. Beijing time against the U.S.

dollar from Thursday's close of 6.9496, the strongest level since Oct 8.

     YUAN: USDCNH hit fresh daily lows after Bloomberg's reporting. The pair

traded as low as 6.8985 on the news before retracing some losses, with uptrend

support from the Sep 21 lows giving way, opening the 55-daily moving average at

6.8846.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) on Friday for a

sixth trading day, which left liquidity unchanged. No reverse repos mature

today, according to Wind Information. The central bank said the liquidity in the

banking system is currently at a reasonable and ample level. The 7-day weighted

average interbank repo average rate for depository institutions (DR007)

decreased to 2.6020% from Thursday's close of 2.6449%, Wind Information

reported. The overnight repo average decreased to 2.4627% from Thursday's

2.5404%.

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

3.5525%, up from the closing price of 3.4925% on Thursday, according to Wind

Information.

     FROM THE PRESS: The People's Bank of China (PBOC) will use monetary policy

tools to provide reasonable and ample liquidity to financial institutions thus

helping small enterprises resolve funding difficulties, Securities Times

reported on Friday citing Deputy Governor Zhu Hexin. The central bank will guide

financial institutions in supporting private companies with debt financing, such

as selling bonds, Zhu said according to the newspaper. (Link to the story:

https://bit.ly/2yUGU6X)

     The key to stabilizing the economy is promoting the healthy development of

private companies including small and medium-sized enterprises(SMEs), Financial

News, a newspaper run by the People's Bank of China, reported citing Wang Qing,

chief analyst at credit rating firm Dongfang Jincheng. Resolving the financing

difficulties for private companies and SMEs will have a direct impact on easing

the irrational fluctuation of market sentiment and boosting investors'

confidence, Wang said. SMEs provide 80% of jobs in cities, 60% of fixed asset

investment, and half of exports, so boosting development of private businesses

will help achieve the goal of "stablishing the growth of employment, investment

and foreign trade" set by the Politburo on Wednesday, Wang said. (Link to the

story: https://bit.ly/2P3GNzS)

     China should further increase the internationalization of its futures

market, and actively invite foreign investors to participate, China Securities

Journal reported on Friday citing Fang Xinghai, deputy chairman of the China

Securities Regulatory Commission. China's futures market can take major steps

now given the scale of the economy, the journal said citing Fang. Speculators

may prop up transaction volume in the short term, but they won't help the

sustainable and healthy development of the market, Fang was cited as saying.

(Link to the story: https://bit.ly/2Qbw6Yp)

     China can further cut banks' reserve requirement ratios (RRR) to encourage

lending to private and small companies, China Securities Journal reported citing

Lian Ping, chief economist at the Bank of Communications. The government may

consider introducing policies to promote the development of non-credit

financing, including off-balance sheet financing, Lian was cited as saying.

There should be more specific measures to ease the financing difficulties of

private and small enterprises, the newspaper said citing Lian. (Link to the

story: https://bit.ly/2OmBJkW)

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

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

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]