MNI China Daily Summary: Monday, October 15

     TOP NEWS: As trade tensions with the U.S. heated up and concerns over

economic growth picked up, the People's Bank of China(PBOC) provided 'adequate'

liquidity in September, with an increasing number of traders seeing liquidity

conditions rose to 44.4%, up from 16.7% in August, the latest MNI China

Interbank Survey showed. "The (liquidity) situation was still comfortable in

September, as the PBOC knows demand for capital is soaring as lenders have to

purchase newly-issued local governments bonds to support infrastructure and

prepare for quarterly assessments," said a trader in Shanghai with one of the

Big Four state-owned commercial banks.

     POLICY: China should focus on cutting taxes for corporations to help them

offset the impact of an escalating trade war and ongoing structural reform, a

deputy head of a leading government think tank said Saturday. "As China's main

task is supply-side structural reform, the main goal of tax reduction should be

cutting costs for companies and the real economy," Gao Peiyong, deputy head of

the Chinese Academy of Social Sciences, said at a forum in Beijing.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) on Monday,

leaving liquidity unchanged, with the maturity of CNY451.5 billion in

medium-term lending facilities (MLFs) offset by the PBOC's reserve requirement

ratio (RRR) cut. No reverse repos mature today, according to Wind Information.

The central bank said the level of liquidity in the banking system is

"relatively high", enough to absorb the impact from financial institutions'

deposits of reserve requirements, as well as government bond issuance and other

factors. The 7-day weighted average interbank repo average rate for depository

institutions (DR007) increased to 2.6023% from Friday's close of 2.5933%, Wind

Information showed. The overnight repo average decreased to 2.3633% from

Friday's 2.4241%.

     YUAN: The yuan depreciated to 6.9254 against the U.S. dollar from Friday's

close of 6.9234. The PBOC set the yuan central parity rate weaker for a 10th

straight trading day at 6.9154, compared with 6.9120 on Friday.

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

3.59%, up from the closing price of 3.5825% on Friday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 1.49% lower at

2,568.10. Hong Kong's Hang Seng Index decreased 1.38% to 25445.06.

     FROM THE PRESS: There still is considerable room for monetary policy

adjustment, including changes in interest rates, reserve ratios and monetary

conditions, Yi Gang, governor of PBOC, said during his speech at the G30

International Banking Seminar on Sunday, according to the newspaper National

Business Daily. The trade frictions with the U.S. will lead to negative

expectations and uncertainties, which will cause tension in the market, Yi said.

Yi is also confident that the monetary policy tools at hand are sufficient to

deal with these uncertainties. China's current economic growth is stable, and is

expected to reach or even slightly exceed the target of 6.5% set for this year,

Yi reiterated.

     The 1% RRR cut that will take effect on Monday may not have as direct an

impact on liquidity as the media reports, reported the newspaper The Paper,

citing China International Capital Corp.(CICC). The actual impact of the RRR cut

will also depend on the size of the liquidity injected by the PBOC's OMOs in the

future,  considering that the current balance of OMOs is as high as CNY9.26

trillion, of which more than CNY600 billion will mature in October. There will

be CNY451.5 billion in and another CNY150 billion of treasury deposits maturing

this week, with no reverse repos expiring. Thus, in addition to the replacement

of MLF, the RRR cut will release incremental funds of another CNY750 billion,

the newspaper said, citing Wind Information.

     China should consider introducing more forms of taxes such as tax on vacant

properties, to help containing property speculation, rather than drastic

measures that may lead to a sudden burst of the bubble, said Qiu Baoxing, a

State Council counsellor and former deputy minister of Housing and Urban-Rural

Development, the Economic Daily reported. The implementation of the proposed

property tax can be held off for another five years, while other taxes could get

introduced first, Qiu told the newspaper. Such moderate measures help maintain

the consumption power and the wealth of property-owning residents, the newspaper

said citing Qiu. Housing vacancy rates in China can be as high as 70% in some

cities, while they are only around 5% in countries that have introduced such

taxes, the daily said citing Qiu.

--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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]