MNI China Daily Summary: Monday, January 6

     EXCLUSIVE: The New Year's Day announcement by the People's Bank of China

(PBOC) of cuts to banks' reserve requirement ratios should be followed by

another two to three RRR reductions, totalling as much as 200 basis points, in

order to support growth and ensure financing is available for key regional

spending projects, policy advisors told MNI. Chinese financial institutions may

require additional liquidity of up to CNY3.5 trillion in January, to cope with a

spike in demand before the week-long Chinese New Year holiday starting Jan 24

and to compensate for CNY857.5 billion in maturing PBOC facilities, according to

an estimate from China International Capital Corporation. The 50-basis-point RRR

cut announced Jan. 1, which comes into effect Jan. 6, will only provide CNY800

billion.

     POLICY: The PBOC will keep a prudent monetary policy appropriately flexible

this year, the central bank said on Sunday following its annual work meeting.

PBOC said its 2020 work guidelines are also to step up countercyclical

adjustments to keep liquidity reasonably ample and the growth of credits and

social financing in line with economic development.

     DATA: Caixin China services PMI fell to 52.5 in December from 53.5 in

November. New orders continued to moderately recover while new export order

expanded at the slowest rate in three months, said Caixin. The decline reported

by Caixin was in line with the official PMI for the services sector which

decreased 0.5 to 53.

     LIQUIDITY: The PBOC skipped open market operations, draining net CNY50

billion given the maturity of reverse repos, according to Wind Information. The

central bank conducted 0.5 percentage point cut to the reserve requirement

ratios announced on Jan 1, expected to release CNY800 billion long-term funds,

the PBOC said on its website. Total liquidity in the banking system is

relatively high, enough to offset the maturity of reverse repos, PBOC added.

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

institutions (DR007) decreased to 1.8516% from Friday's close of 2.0189%, Wind

Information showed. The overnight repo average fell to 0.9986% from Friday's

1.1452%.

     YUAN: The yuan weakened to 6.9745 against the U.S. dollar from Friday's

close of 6.9716. PBOC set the dollar-yuan central parity rate higher at 6.9718,

compared with last Friday's 6.9681.

     BONDS: The yield on 10-year China Government Bond was last at 3.1575%, down

from Friday's close of 3.1700%, according to Wind Information. 

     STOCKS: The Shanghai Composite Index closed little changed at 3,083.41.

Hang Seng Index lost 0.79% to 28,226.19. 

     FROM THE PRESS: China's GDP growth is expected to stay above 6% in 2020,

the Shanghai Securities Journal reported citing Sheng Songcheng, a counsellor in

the Shanghai municipal government. While investment expanded the slowest on

record in 2019, high-tech investment growth accelerated to 14.1% y/y in the

first 11 months, 8.9 percentage points faster than total investment, the

newspaper cited Sheng as saying. Sheng predicted that investment in high-tech

industries may account for more than 30% of overall investment in five years,

and more than 50% in a decade, the newspaper said.

     Policymakers will focus on cutting the cost of power, communications and

transportation for manufacturers, the Securities Daily said citing Zhang Yiqun,

a member of the Society of Public Finance of China. Chinese manufacturers can

save as much as CNY60 billion on power and CNY60 billion on telecommunication

costs, the newspaper said. 

     China's December CPI may rise to about 4.8%, according to analysts quoted

by the Economic Information Daily. Meat prices will fall in the second half of

2020 and CPI will fall below 2% y/y in the Q4 this year, the newspaper reported

by citing Qing Tai, a senior analyst with Shenwan Hongyuan Securities.

--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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