MNI China Daily Summary: Monday, December 25

     TOP NEWS: China is likely to set its lowest money growth target in history

next year, at around 9%, after top policymakers pledged to control the "master

valve" of total money supply, which is recognized as the origin of the surging

debt burden and the trigger of asset bubbles, China Daily reported Monday,

citing Li Yang, director of the National Institution for Finance and Development

at the Chinese Academy of Social Sciences. Li said the goal is not only the top

target for 2018 but also for the next three years, as financial risks become the

biggest medium- and long-term threat to China's economic stability. Single-digit

growth in the broad money supply, or M2, is likely during the coming year, which

will be close to its real growth this year, Li noted. (China Daily)

     POLICY: Industrial output in 2018 is expected to grow about 6%, the

Ministry of Industry and Information Technology said in a statement on its

website on Monday. Industrial output in 2017 is likely to increase 6.5% compared

with the 6% growth in 2016 -- the first annual acceleration in growth since

2010, the ministry said. China will enhance communications with countries

involved in the "One Belt, One Road" infrastructure initiative and push ahead

with international cooperation in a number of industries, including auto-making,

construction machinery, electronics and textiles, the statement noted.

     RATES: Money market rates were mixed. The seven-day repo average was last

at 2.8140%, compared with Friday's average of 2.7649%. The overnight repo

average was at 2.5298%, compared with Friday's 2.5447%.

     LIQUIDITY: The People's Bank of China skipped open-market operations on

Monday, saying that an increase in year-end fiscal spending would suffice in

hedging the impact of the CNY120 billion in maturing reverse repos the same day.

A total of CNY290 billion reverse repos are maturing this week. The PBOC

injected a total of CNY200 billion into the banking system via reverse repos

last week.

     YUAN: The yuan was stronger against the U.S. dollar on Monday after the

People's Bank of China set the fixing rate much stronger for the day. The yuan

was last at 6.5510 against the U.S. unit, the strongest since Sept. 19, with

forex market trade relatively small. The PBOC set the yuan central parity rate

at 6.5683, 0.21% stronger than Friday's 6.5821.

     BONDS: The yield on benchmark 10-year China government bonds was 3.8800%,

down from Friday's 3.8870%. 

     STOCKS: Stocks fell, with the textile and aircraft manufacturing sectors

leading losses. The benchmark Shanghai Composite Index closed down 0.50% at

3,280.46. Hong Kong's stock exchange was closed for the Christmas holiday.

     FROM THE PRESS: China should grant more rights to local governments to

issue bonds in order to increase direct funding and establish a multilevel

capital market, the China Business News reported Monday, citing Xu Zhong,

director of the People's Bank of China Research Bureau. Local governments should

be able to issue bonds according to their needs and market demand, and the

central government should relax controls on bond issuance, Xu suggested. The

current central approval system has abused the definition of municipal bonds, he

added, and restricted the issuance of local government bonds. China needs to

allow the bankruptcy of local state-owned enterprises and even local governments

to reverse market expectations that the central government will rescue them, Xu

said. (China Business News)

     The top economic priority next year is strictly controlling the growth of

local government debt, particularly the "invisible" part, China Business News

said in a commentary on Sunday. The Ministry of Finance has stressed recently

that the market and financial institutions should dispel the illusion that the

central government will bail out indebted local governments. The authorities

will curb debt growth through regulations on local governments, financial

institutions and state-owned enterprises run by the central government, the

commentary said. China will set up a market-oriented mechanism to tackle

defaults and prevent expansion of risk associated with debt, it said. Regulators

will crack down on illegal guarantees and correct illicit behavior in government

investment funds, public-private partnership projects and government purchasing

services, the commentary said. (China Business News)

     The financial sector still harbors significant risks, and the momentum of

strict regulation will not change, the official Xinhua News Agency said in a

commentary on Saturday. To prevent or mitigate risks, China needs to build a

long-lasting, effective system via deepening reforms and market-opening

measures. There is no option but to improve the financial sector's ability to

serve the real economy, the commentary said. The aim is a new culture within the

financial sector and in its relationships with the real economy and the property

market to contribute to high-quality economic growth, the commentary added.

(Xinhua News Agency)

     The neutral bias intended for monetary policy next year means that

liquidity conditions will not tighten, considering that the financial sector is

expected to shrink under strict regulation, the official People's Daily reported

Monday, citing Bank of Communications chief economist Lian Ping. The "neutral"

principle requires regulators to use multiple tools to stabilize volatility in

liquidity conditions and resolve potential crunches, Lian said, noting that

monetary policy will keep liquidity conditions at an appropriate level and

stabilize lending rates. Deleveraging efforts will continue, and expected new

regulations will target the off-balance-sheet transactions of banks, financial

technology firms and so-called zombie companies, Lian predicted. (People's

Daily)

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

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

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