MNI China Daily Summary: Thursday, February 21

     EXCLUSIVE: A possible memorandum of understanding(MOU) after this week's

China-U.S. trade talks will probably contain only vague wording about

stabilizing the yuan exchange rate, rather than specific pledges, policy

advisors to the Chinese government told MNI Wednesday. "Any promise would be

unlikely to be very specific. It's more likely to resemble a framework as the

problems won't have specific solutions in such a short period," Guan Tao, former

Director General of Balance of Payments at the State Administration of Foreign

Exchange, told MNI in an interview. "A discussion of yuan exchange rate

stability should not only impose responsibilities on China, but also require

cooperation from the U.S., such as by reducing trade frictions, slowing the pace

of Fed interest rate hikes, and maintaining a basically stable U.S. dollar,"

Guan said.

     POLICY: The People's Bank of China (PBOC) said the opportunity to profit

from using bank bills to arbitrage between rates offered by different banks is

temporary, and the main beneficiary of the bill financing has been the real

economy. Commenting on its own daily the Financial News, PBOC attempted to fend

off criticisms that arbitraging was the main driver inflating the latest bill

financing figures. The window of opportunity to profit will close as structured

deposit rates return to a reasonable level, the PBOC said. 

     DATA: China's outbound direct investment in January fell 86.8% y/y to $9.19

billion, data by the Ministry of Commerce showed. The drops could be attributed

to tightened scrutiny by host nations, global economic slowdown and high base of

comparison, the ministry said. Investment in Belt and Road countries rose 8.1%

to $1.33 billion, shared among 47 countries, the ministry said, adding

"irrational investment" has been effectively curbed.

     DATA: A total of CNY3.2 trillion bonds was issued in China's bond market in

January, PBOC's data show. Inter-bank money market turnover totaled CNY89.7

trillion, increasing 26.49% y/y; the transaction in inter-bank bond market

recorded CNY14.9 trillion, according to the PBOC.

     LIQUIDITY: The PBOC skipped open market operations, leaving liquidity

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

PBOC issued a total CNY71.9 billion of pledged supplementary lending (PSL) to

offset the peak tax season and the maturing treasury cash management.

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

institutions (DR007) increased to 2.2800% from Wednesday's close of 2.2545%,

according to Wind Information. The overnight repo average rose to 2.0300% from

Wednesday's 1.8414%.

     YUAN: The yuan appreciated to 6.7101 against the U.S. dollar from

Wednesday's close of 6.7236. The PBOC set the dollar-yuan central parity rate at

6.7220 today, lower than the 6.7558 set on Wednesday.

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

3.14%, down 2.2 bps from the close of Wednesday, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index declined 0.34% to 2,751.80.

Hong Kong's Hang Seng Index increased 0.41% to 28,629.92.

     FROM THE PRESS: China has plenty of room to further lower banks' reserve

requirement ratios (RRR) as they are still higher than those of other major

economies, Premier Li Keqiang said in a State Council meeting on Wednesday. The

two RRR cuts in January were in line with market expectations, and liquidity has

been withdrawn properly during the cuts, Li said. China won't change its prudent

monetary policy nor will it pursue a "flooding" style of pro-growth measures, Li

reiterated.

     The declining trend of China's PPI reflected reductions in the costs of

input, not a lack of liquidity, so it needs not be a cause for concern, the

Economic Daily said in a commentary. A falling PPI may hurt the industrial

sector, though it shouldn't be its sole performance indicator, the daily said. 

--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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