MNI China Daily Summary: Monday, December 17

     POLICY: The People's Bank of China (PBOC) will improve its "dual-pillar"

policy framework using both monetary tools and macro-prudential regulations,

properly manage money supply, direct the reasonable expansion of credit and

social financing, so as to serve the real economy, the central bank said in a

statement on its website. It will strive to form a nationwide financial risk

prevention system, push forward reforms and actively expand financial opening,

according to the statement.

     DATA: China's capital outflow accelerated in Nov from Oct as indicated by

FX purchase positions published Monday by the People's Bank of China. The

purchase positions last month fell for a fourth, down CNY57.13 billion to

CNY21.76 trillion from Oct, according to PBOC data.

     LIQUIDITY: The PBOC injected CNY160 billion by seven-day reverse repos,

ending a 36-day absence of open market operations(OMOs). The central bank said

the injection is to offset the impact of taxation, the bond issuance and

required reserves by banks, among other factors.

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

institutions (DR007) increased to 2.7058% from Friday's close of 2.6922%, Wind

data showed. The overnight repo average decreased to 2.6192% from Friday's

2.6482%.

     Yuan: The yuan depreciated to 6.9004 against the U.S. dollar from Friday's

close of 6.8975. The PBOC set the dollar/yuan central parity rate at 6.8908

today.

     STOCKS: The benchmark Shanghai Composite Index fell 0.16% to 2,597.97. Hong

Kong's Hang Seng Index decreased 0.03% to 26,087.98.

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

3.4000%, down from the closing price of 3.3650% on Friday, according to Wind

Information.

     FROM THE PRESS: The PBOC is unlikely to cut banks' reserve requirement

ratios (RRR) or interest rates further this year following an injection of

CNY160 billion today through 7-day reverse repos, the China Securities Journal

said. It may be difficult to loosen China's money supply now as it could further

weaken the yuan against the dollar, the newspaper said.

     Cutting the Reserve Requirement Ratio(RRR) is no longer at the core of

monetary policy, but a tool to optimize the central bank's policy portfolio, the

Securities Daily said in a commentary. Policymakers are searching for the

optimal integration of monetary and fiscal policies to channel liquidity into

the real economy, the daily said. It may be necessary to use RRR cuts as this

process unfolds, but it will only be a minor role and the marginal effect of

further conducting RRR cuts will significantly lessen, the newspaper said.

Tax cuts in 2019 could reach at least CNY1.5 trillion, the China Business News

said citing scholars and researchers including Zhao Quanhou, who is affiliated

with the Ministry of Finance. VAT, personal income taxes and social insurance

will be the main areas for tax cuts, the newspaper said.

--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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