MNI China Daily Summary: Thursday, December 20

     POLICY: China will step up capital market reform after having largely

defused risks and made the market more valuable as long-term investments,

according to a statement by the People's Bank of China (PBOC) following a

meeting of the Financial Stability and Development Committee. The next step of

the reform will seek to improve the quality of listed companies and the

delisting procedure, according to the summary of the meeting chaired by Deputy

Governor Liu Guoqiang.

     TRADE WAR: China's Ministry of Commerce confirmed today that China and the

U.S. will hold trade talks in January. "Both sides will at anytime arrange

negotiation activities, including meetings and talks, according to the need to

advance negotiations, and to facilitate the presidents' consensus from their

(G20) meeting," Gao Feng, MOFCOM's spokesman said. Chinese and U.S. officials

discussed topics such as the trade balance and intellectual property protection

in their call on Wednesday, exchanging ideas on arrangements for negotiations,

Gao noted.

     LIQUIDITY: The PBOC injected CNY120 billion via seven-day reverse repos,

and CNY30 billion through 14-day reverse repos today, adding liquidity for a

fourth straight trading day. It resulted in a net injection of CNY150 billion in

liquidity, as no reverse repos mature today, according to Wind Information. The

central bank said this is to offset the issuance of government bonds and other

factors, and keep the liquidity in the banking system at a reasonable and ample

level.

     RATE: The 7-day weighted average interbank repo average rate for depository

institutions (DR007) decreased to 2.6374% from Wednesday's close of 2.6726%,

Wind Information showed. The overnight repo average decreased to 2.5544% from

Wednesday's 2.6417%.

     YUAN: The yuan depreciated to 6.8970 against the U.S. dollar from

Wednesday's close of 6.8954. The PBOC set the dollar/yuan central parity rate at

6.8936 today, as the yuan weakened a touch from Wednesday's 6.8869.

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

3.3050%, down from the closing price of 3.3550% on Wednesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.52% lower at

2,536.27. Hong Kong's Hang Seng Index decreased 0.94% to 25,623.53.

     FROM THE PRESS: The new tool rolled out by the PBOC Weds, targeted

medium-term lending facility (TMLF), can be seen as a targeted interest rate cut

for small and private companies, as it offers a lower interest rate and longer

term of maturity in comparison to the current MLF, a report published by GF

Securities today said. The tool aims to reduce the financing costs of private

and small companies. While the government also intends to stabilize the

employment market by supporting SMEs, the report said. The introduction of TMLF

indicates that the authority will adopt a neutral to slight easing in monetary

policy for the year ahead, the report said.

     China's central bank is expected to cut at least 200 basis points of

Reserve Requirement Ratio(RRR) in the next year, and may also cut the open

market operations rates after the targeted medium-term lending facility (TMLF),

said China International Capital Corporation(CICC). The PBOC will ensure

sufficient liquidity and is likely to continue to guide short-term rates lower,

CICC said.

     Issuance of local government bonds is expected to expand next year and

which could reach CNY4.5 trillion as the authorities look to boost investment,

the Economic Information Daily said citing analysts from Sinolink Securities.

The issuance of local governments' special bonds will also increase, aiming to

strengthen the economy's weak links, such as transportation infrastructure. The

scale could reach CNY2 trillion in 2019, the report said citing Sinolink

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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