MNI China Daily Summary: Thursday, January 2

     BEIJING (MNI) - POLICY: The People's Bank of China (PBOC) will cut the

reserve requirement ratios of financial institutions across the board by 0.5

percentage point from Jan 6, according to a statement on the central bank's

website on Wednesday. The countercyclical rate cut will release CNY800 billion

long-term funds and is intended to support the real economy and lower social

financing costs, the PBOC said. 

     DATA: The Caixin China manufacturing Purchasing Managers Index (PMI) edged

down for the first time in six months to 51.5 in December from November's 51.8.

The index still stayed in expansion and was higher than in the first three

quarters, Caixin said. New orders sub-index fell to a three-month low and new

export orders declined slightly, though both stayed above 50. Improving domestic

and overseas demand drove expansion in production and output, Caixin said.

     LIQUIDITY: The PBOC skipped open market operations on Thursday, resulting

in a net drain of CNY400 billion given the same amount of reverse repos matured

today, according to Wind Information. Total liquidity in the banking system is

at a relatively high level, enough to offset the maturity of reverse repos, PBOC

said on its website.

     RATES: The seven-day weighted average interbank repo rate for depository

institutions (DR007) fell to 1.9853% from Tuesday's close of 2.8110%, data by

Wind Information showed. The overnight repo average decreased to 1.3909% from

Tuesday's 1.7204%.

     YUAN: The currency strengthened to 6.9631 against the dollar from Tuesday's

close of 6.9662. PBOC set the dollar-yuan central parity rate lower at 6.9614 on

the first trading day of 2020, from 6.9762 before the N.

     BONDS: The yield on 10-year China Government Bonds was last at 3.1700%, up

from Tuesday's close of 3.1550%, according to Wind Information.

     STOCKS: The Shanghai Composite Index gained 1.15% to 3,085.20, boost by the

upcoming reserve requirement ratio cut announced yesterday. Hong Kong's Hang

Seng Index rallied 1.25% to 28,543.52.

     FROM THE PRESS: The PBOC is expected to make further cuts to reserve

requirement ratios after scheduled 0.5 pp cut on Jan 6, the China Securities

Journal reported citing Wang Qing, the chief macroeconomic analyst at credit

rating agency Dongfang Jincheng. The central bank may conduct medium-term

lending facilities (MLFs) to add liquidity during the Chinese New Year at the

end of January to meet increased cash demand, the newspaper said citing Liao

Zhiming, the chief banking analyst at Tianfeng Securities.

     Ten provinces including Sichuan and Henan are planning to issue CNY229.3

billion infrastructure-backed local government special bonds in January, the

China Securities Journal reported. The bond issuance may reach CNY410 billion in

January and total CNY3.35 trillion in 2020, the journal said citing Ming Ming,

chief fixed-income analyst at CITIC Securities. Funds raised are largely used to

support urban and rural infrastructure construction, ecological environmental

protection, water conservation and social welfare projects, Ming was cited as

saying.

     China must take more measures to ensure stable growth at around 6%, the

Economic Daily reported citing Feng Qiaobin, the deputy director of the

macroeconomic research department at the Development Research Center of the

State Council. China will issue CNY3.15 trillion of new local government

special-purpose bonds to support a number of infrastructure projects, including

the Sichuan-Tibet railway in a bid to boost investment and stabilize growth, the

newspaper cited Feng as saying.

--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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