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LIQUIDITY: The People's Bank of China (PBOC) injected CNY180 billion via 7-day reverse repos with the rate unchanged on Wednesday. This resulted in a net drain of CNY100 billion given the maturity of CNY280 billion of reverse repos today, according to Wind Information. Fiscal expenditures have increased significantly near the end of the month, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 3.0936% from 2.78518% for Tuesday, Wind Information showed. The overnight repo average increased to 3.0040% from the previous 2.7746%.

YUAN: The currency strengthened to 6.4671 against the dollar from 6.4756 Tuesday. The PBOC set the dollar-yuan central parity rate lower at 6.4665 today. This compares with the 6.4847 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 3.2150%, up from Tuesday's 3.2135%, according to Wind Information.

STOCKS: The Shanghai Composite Index lost 0.11% to 3,573.34 while the CSI300 index gained 0.27% to 5,528.00. The Hang Seng Index lost 0.32% to 29,297.53.

FROM THE PRESS: The PBOC may need to inject around CNY900 billion into the financial system in case of a liquidity gap around the mid-February Lunar New Year, the Shanghai Securities News reported citing Ming Ming, the chief analyst at CITIC Securities. The central bank may inject funds through MLF and 14-day reverse repos while avoiding credit flooding, the newspaper said citing Ming. The PBOC will avoid making abrupt changes to its monetary policies so as to balance between economic recovery and risk avoidance, and to stabilize the macro leverage ratio, the newspaper said citing a recent remark by Sun Guofeng, the head of the PBOC's monetary policy department.

China should consider replacing some existing debts with central government bonds, since local governments are under growing pressure given tightened rules on the sale of special local bonds, the China Securities Journal reported citing industry experts. Local governments should, however, maintain reasonable growth and only debts backed by regulation could be replaced by government bonds, the newspaper cited Zhang Ming, a director from the China Academy of Social Science. Implicit local government debts remain difficult to resolve given their roles supporting the local economy, the newspaper wrote citing Wen Laicheng, a director from the Zhongcai-CSCI Pengyuan Research Institute.

China and the new U.S. administration should restart a multilevel dialogue and reshape economic and trade relations, the China Daily reported citing former Chinese officials. The two sides should evaluate the Phase One agreement, begin new negotiations, roll back extra tariffs and cancel unreasonable investment restrictions, the newspaper said citing Zeng Peiyan, the former vice premier and now chairman of the China Center for International Economic Exchanges.

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