MNI China Daily Summary: Monday, December 2

     EXCLUSIVE: A surge in issuance of special-purpose bonds by Chinese local

governments as national authorities urge an increase in infrastructure spending

brings a growing risk of defaults due to a shortage of suitable projects

providing reliable revenue streams for the securities, policy advisors told MNI.

Special-purpose bond issuance could jump to CNY3.35 trillion in 2020, equivalent

to 3.2% of GDP, according to China International Capital Corporation estimates.

This compares to the national government's 2.8% deficit ceiling for 2019.

     POLICY: China said Monday it has suspended reviews of requests for U.S.

military ships and aircraft visiting Hong Kong as a response to President Donald

Trump's signing the legislation backing protesters in Hong Kong. China will also

sanction some U.S. non-governmental organizations including the National

Endowment for Democracy, Human Rights Watch and Freedom House for supporting

"extremist and violent activities" in Hong Kong, Hua Chunying, a spokeswoman for

the Ministry of Foreign Affairs, said at a regular briefing.

     POLICY: The People's Bank of China (PBOC) won't pursue a zero-interest rate

policy or quantitative easing, but will maintain normal monetary policies for as

long as possible, Governor Yi Gang said at the weekend. The central bank will

stick to prudent monetary policy, implement countercyclical adjustments and

maintain "reasonably sufficient" liquidity, Yi said in an article published

online by Qiushi on Sunday.

     POLICY: China should set next year's GDP growth target at between 5.5% and

6% and refrain from ensuring a minimum 6% hard target, according to Liu

Yuanchun, an advisor to the State Council and a vice president of Renmin

University. Instead, policymakers should maintain a strategy of transforming the

economy through high-quality growth, Liu told the China Macroeconomy Forum on

Saturday.

     POLICY: China's campaign to push lenders to support the real economy in the

hope of boosting growth carries risks, Wu Xiaoqiu, an influential Chinese

economist and vice president at Renmin University, said Saturday. Top-down

administrative pressure to give life-support to ailing industries, such as coal

mining, places banks at greater risks and violates free market principles, Wu

told a conference at the school, an institution that serves as a think tank to

policymakers.

     DATA: China's Purchasing Manager Index (PMI) unexpectedly rose to 50.2 in

November, rising from October's 49.3, higher than 49.5 expected by economists,

indicating that for the first time in six months manufacturing returned to

growth, data released Sunday showed.

     DATA: The Caixin China manufacturing PMI rose for the fifth consecutive

month to 51.8 in November from October's 51.7. The index moved further into the

expansionary zone above the breakeven 50 and hit the highest level since 2017.

Improved demand drove manufacturers to expand production and led to increased

output, Caixin said.

     LIQUIDITY: The PBOC skipped open market operations for the ninth day,

leaving liquidity unchanged as no reverse repos mature today, according to Wind

Information. The total liquidity in the banking system is relatively high, the

PBOC said.

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

institutions (DR007) decreased to 2.3775% from Friday's close of 2.5765%, Wind

Information showed. The overnight repo average rose to 2.2249% from Friday's

1.9462%.

     YUAN: The yuan weakened to 7.0449 against the U.S. dollar from Friday's

close of 7.0261. PBOC set the dollar-yuan central parity rate lower at 7.0262,

compared with Friday's 7.0298.

     BONDS: The yield on 10-year China Government Bond was last at 3.2100%, up

from Friday's close of 3.1710%, according to Wind Information. 

     STOCKS: The Shanghai Composite Index gained 0.13% to 2,875.81. Hang Seng

Index rallied 0.37% to 26,444.72. 

     FROM THE PRESS: Market sentiment on the Chinese economy's prospects for

2020 was "cautiously optimistic", as looser monetary policies around the globe

had increased international capital inflows into China and helped improve

liquidity and corporate financing, the PBOC-run Financial News reported citing a

report by the Bank of China. The recovery in car sales will further consolidate

the contribution of consumption to economic growth, the newspaper said.

     China may focus on boosting consumption and infrastructure in rural areas

in a bid to expand domestic demand, the Economic Information Daily reported

citing experts. The current per capita spending of 560 million farmers is only

47% of that of an urban resident. The consumption could be boosted by several

hundred billion yuan each year with the ongoing promotion of urbanization, the

newspaper said citing Chen Yajun, head of strategy and planning at the National

Development and Reform Commission.

     China has approved the securitisation of non-performing assets by rural

commercial banks, the Shanghai Securities News reported. Banks in China has

issued 87 securities backed by non-performing assets since 2016, worth combined

CNY 55.38 billion, 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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