MNI China Daily Summary: Thursday, January 10

     POLICY: Depreciation pressure on the yuan will likely ease this year, as

U.S. rate hikes are cast into doubt, potentially giving the People's Bank of

China an opportunity to further relax controls on the currency, a former top

foreign exchange regulator told MNI. Possible steps for the PBOC would include

allowing increased tolerance for a wider band of yuan trading, Guan Tao, former

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

Exchange said in an interview, in which he stressed that a flexible exchange

rate is crucial for the country to further open up its financial market.

     TRADE WAR: China is expected to make partial concessions towards U.S.

demands for structural reform and preventing forced technology transfers after

bilateral trade talks this week, although it is unlikely to commit to specific

quantities of imports, a trade advisor for the Ministry of Commerce told MNI on

Wednesday. The two sides will declare consensus on several principles and some

issues, "but the language may be vague," said Lu Jinyong, vice president of

China Association for International Economic Cooperation, managed by the

Ministry of Commerce. He added that both countries wanted to send a clear

message that talks have produced positive results and that the probability of

reaching a final deal had risen.

     DATA: The producer price index (PPI) gained 0.9% in December over a year

ago, according to data released by the National Bureau of Statistics on

Thursday. This was the lowest level since September 2016, and below the 1.6%

projected in an MNI survey of economists, and also contrasted sharply with

November's 2.7% rise y/y. The consumer price index (CPI) rose 1.9% y/y in

December, down from 2.2% inflation in the previous month, missing the projection

of 2.1% in an MNI survey. It was also the smallest gain since June 2018.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a fourth day

today. This resulted in a net drain of CNY70 billion as the same amount of

reverse repos matured, according to Wind Information. The central bank said

liquidity in the banking system is at a relatively high level.

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

institutions (DR007) increased to 2.4833% from Wednesday's close of 2.3866%,

Wind Information showed. The overnight repo average increased to 1.7311% from

Wednesday's 1.5583%.

     YUAN: The yuan appreciated to 6.7825 against the U.S. dollar from

Wednesday's close of 6.8330. The PBOC set the yuan's central parity rate much

stronger at 6.8160 on Thursday, compared with 6.8526 on Wednesday. Today's

increase was the largest daily raise since Dec 4, 2018.

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

3.1300%, up from Wednesday's closing 3.1200%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.36% lower at

2,535.10. Hong Kong's Hang Seng Index increased 0.22% to 26,521.43.

     FROM THE PRESS: China's economy is likely to stabilize after the first

quarter and may pick up in the second half of the year, Securities Daily

reported, citing Sheng Songcheng, a former counsellor at the People's Bank of

China. Growth is likely to slow to 6.2% in 2019 after 6.6% last year, the

newspaper said, citing Zhu Baoliang, director of economic forecasting at the

State Information Centre.

     China's State Council executive meeting on Wednesday introduced tax cuts

for small businesses amounting to CNY200 billion each year for the next three

years, according to a statement on the government's website late Wednesday.

     The PBOC will establish an incentive-based mechanism to encourage banks to

actively boost lending to the real economy, instead of using administrative

measures like setting targets or assigning orders, Xinhua News Agency said,

citing the central bank's Governor Yi Gang. The PBOC will try to channel

liquidity into the real economy and will take measures to help banks top up

capital, Xinhua said citing Yi.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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