MNI China Daily Summary: Thursday, January 3

     POLICY: China's fiscal deficit will exceed its ceiling of 3% of GDP in

2019, on the back of tax cuts and more local government bond issuance, according

to a report published by Guanghua School of Management at Peking University. If

downward pressure on the economy continues, the actual deficit could exceed 4%

of GDP by the end of the year, it said. Total tax and fee cuts could reach

CNY1.5 to 2 trillion this year, while new local government bonds could total

CNY4.7 trillion, according to the report.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY40 billion in

7-day reverse repos, and CNY20 billion in 14-day reverse repos today, the 13th

trading day that the central bank has added liquidity by open market operations

(OMOs). The result was a net drain of CNY90 billion after the maturity of CNY150

billion of reverse repos, according to Wind Information. The PBOC said today's

OMO is to offset the maturity of reverse repo, the issuance of government bonds

and other factors.

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

institutions (DR007) decreased to 2.2967% from Wednesday's close of 2.4679%,

Wind Information showed. The overnight repo average decreased to 1.8901% from

Wednesday's 2.2275%.

     YUAN: The yuan depreciated to 6.8721 against the U.S. dollar from

Wednesday's close of 6.8518. The PBOC set the dollar-yuan central parity rate

weaker at 6.8631 on Thursday, compared with 6.8482 set on Wednesday.

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

3.1550%, down from Wednesday's closing 3.1700%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.04% lower at

2,464.36. Hong Kong's Hang Seng Index decreased 0.26% to 25,064.36.

     FROM THE PRESS: The PBOC is expected to release about CNY600-700 billion in

liquidity following its adjustment of reserve ratio criteria for small and

micro-sized enterprises, the Economic Observer said late Wednesday, citing Liao

Zhiming, an analyst at Tianfeng Securities. SMEs with a credit line of less than

CNY10 million will qualify for the central bank's targeted RRR cuts, compared

with the previous standard of CNY5 million, the PBOC said in a statement on its

website last night.

     The PBOC is likely to make targeted cuts to reserve requirement ratios

(RRR) before the Chinese New Year starting Feb 5, so as to fill the liquidity

gap due to the maturity of over CNY1 trillion of funds, greater cash withdrawal

demands and the issuance of local government bonds, said China Securities

Journal today. The central bank is expected to conduct RRR cuts and Targeted

Medium-term Lending Facility (TMLF) in January to release long-term liquidity,

supplemented with short-term liquidity injection, the newspaper said, citing

Ming Ming, a former PBOC advisor.

     China's Ministry of Commerce and the National Development and Reform

Commission are planning to bring forward policies to stimulate consumption,

including increasing residents' incomes, promoting the service industry and

reducing import tariffs, the Economic Information Daily said today. Retail sales

are expected to grow by about 9% in 2019, contributing 65% of economic growth,

the newspaper said.

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

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

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