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Bearish Threat

     POLICY: China's official media hailed the 'phase one' trade agreement
signed with the U.S. in Washington on Wednesday as an "equal and mutually
beneficial" deal that should be cherished as a hard-fought arrangement reached
after 22 months of the trade war, and critics should not only engage in
"nit-picking of the agreement and bad-mouthing future trade negotiations". The
Chinese financial markets appear cautious over the prospects of follow-up
negotiations, as many thorny issues remain unresolved.
     DATA: China's money supply and aggregate financing to the economy all
exceeded market consensus expectations in December, data released Thursday by
the People's Bank of China showed. M2 rose 8.7% y/y, the highest since February
2018's 8.8% and total social financing surged CNY2.1 trillion, compared with
1.75 trillion in November. However, new loans totalled CNY1.14 trillion, less
than the projected CNY1.2 trillion and November's CNY1.39 trillion.
     LIQUIDITY: The PBOC injected a net of CNY300 billion via 14-day reverse
repos with the rate unchanged at 2.65% on Thursday, according to a statement on
the PBOC website. The injection aims to offset the peak demand of tax payments
and cash to keep the liquidity in the banking system at a reasonable and ample
level, the PBOC said.
     RATES: The seven-day weighted average interbank repo rate for depository
institutions (DR007) decreased to 2.6907% from Wednesday's close 2.7867%, Wind
Information showed. The overnight repo average decreased to 2.6130% today from
2.6876% on Wednesday.
     YUAN: The yuan strengthened to 6.8850 against the dollar from Wednesday's
close 6.8871. PBOC set the dollar-yuan central parity rate 38 bps lower at
     BONDS: The yield on 10-year China Government Bonds was last at 3.1200%,
unchanged from Wednesday's close, according to Wind Information.
     STOCKS: The Shanghai Composite Index lost 0.52% to 3,074.08. Hong Kong's
Hang Seng Index increased 0.38% to 28,883.04.
     FROM THE PRESS: The PBOC is expected to inject around CNY400 billion in
additional liquidity to meet demand during the Chinese New Year period, the
Shanghai Securities News reported citing Yang Weixiao, chief fixed income
analyst at BOC International. Some market participants believe that while the
release of CNY300 billion liquidity via MLF yesterday partially met the need,
keeping the MLF rate unchanged disappointed the market, Yang said.
     China's infrastructure investment should increase by more than 11% y/y to
drive short-term growth, and 7.7% in the longer term to match GDP growth, the
Securities Times reported citing Yan Kun, a Researcher at the National Academy
of Economic Strategy. Fund raising for infrastructure projects may be
constrained by debt risk faced by local government financing vehicles and
declining land sale revenues, the newspaper said citing Yan.
     China's local government bond issuances in 2020 may reach record CNY6
trillion, the China Business News reported citing Ma Liya, senior analyst at the
credit-rating agency Dongfang Jingcheng. New bonds will reach CNY4.35 trillion,
with refinancing accounting for close to CNY2 trillion, with issuances driven by
the need to boost growth.
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:
[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]