MNI China Daily Summary: Monday, December 21

EXCLUSIVE: China may extend its anti-trust campaign to the financial sector following recent moves to penalise its internet giants as Beijing wants to strengthen competition and limit the systemic risk posed by mega holding companies that straddle and dominate industries, policy advisors told MNI. China's draft anti-trust rules for the technology sector unveiled in November were aimed at ending monopolistic platform practices by companies that had expanded at a rapid pace into vital areas such as financial services.

POLICY: China will focus on structural reform and boost domestic demand next year while growth will be easier to achieve given a low base of about 2% in 2020, senior officials said in an annual conference held by China Center for International Economic Exchanges on Saturday. Han Wenxiu, deputy head of the Office of the Central Commission for Financial and Economic Affairs, told the conference that the economy would decline steeply quarter-on-quarter next year, with GDP growth averaging about 5% over the two years in line with the natural potential of the economy.

POLICY: China is likely to forge more regional partnerships to counter growing challenges to its export-oriented growth, according to policy advisors speaking during the 5th National Development Forum held by National School of Development at Peking University Sunday. China must also exploit the enormous domestic investment and consumption opportunities not only in response to trade tensions with the U.S., but also to fortify its own economy, said Zhang Junkuo, deputy head of the State Council's Development Research Center.

LPR: China's central bank maintained its key loan rate unchanged today for the eighth month in a row as it aims to normalize monetary policy with the economy on track and debt pressures increasing. The December Loan Prime Rate, the benchmark to set companies' cost of borrowing, remains at 3.85% for the one-year maturity and at 4.65% for the five-year maturity. The move was expected by policy advisors and market analysts as the People's Bank of China held its Medium-Term Lending Facility rate at 2.95% on Dec. 15. The LPR is linked to the one-year MLF, which is viewed as being closer to market rates.

LIQUIDITY: The PBOC injected CNY10 billion via 7-day reverse repos and CNY100 billion via 14-day reverse repos with rates unchanged. This resulted in a net injection of CNY90 billion given the maturity of CNY20 billion of reverse repos today, according to Wind Information. The operations aim to to maintain stable liquidity at the end of the year, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) dropped to 1.9282% from the 2.1137% last Friday, Wind Information showed. The overnight repo average decreased to 1.4349% from the previous 1.7111%.

YUAN: The currency weakened to 6.5494 against the dollar from 6.5415 last Friday. The PBOC set the dollar-yuan central parity rate slightly lower at 6.5507, compared with the 6.5315 set on Friday.

BONDS: The yield on the 10-year China Government Bond was last at 3.2700%, down from last Friday's 3.2950%, according to Wind Information.

STOCKS: The Shanghai Composite Index increased 0.76% to 3,420.57, while the CSI300 index gained 0.94% to 5,046.84. Hang Seng Index lost 0.72% to 26,306.68.

FROM THE PRESS: China may increase the flexibility of the yuan and allow more capital outflow and controlled inflow in a combined approach to stabilizing the yuan next year, Guan Tao, the chief economist of BOC International wrote in an article published by Yicai.com. Guan, a former director of the international payments department at the State Administration of Foreign Exchange, emphasized one policy tool cannot be expected to solve all problems. The Central Economic Work Conference last week talked of "maintaining the stability of the yuan at a reasonable and equilibrium level" for the first time in two years, Guan said.

The interbank bond market is essential to China's bond market, the Financial News reported on Sunday citing industry experts from the PBOC. In what appeared to be a response to critics blaming the central bank for the recent string of SOE bond defaults, the report cited PBOC sources who said the main trading subject of credit bonds should be institutional investors rather than individual investors. Recent cases of credit bond default were due to inadequate corporate management unrelated to the credit bond market, and the authorities should focus on improving regulation mechanisms and credit ratings, the report said.

China is likely to keep its monetary and fiscal policies moderate next year with targeted measures, the China Securities Journal said in a commentary following the Central Economic Work Conference last week. There will be no excess liquidity injection and the macro-leverage ratio will be maintained, the commentary said. Fiscal policy will largely maintain its strength and the preference for key areas, Support for private and small companies may be retained while tax and fee reductions are likely to be more precise, the Journal said.

China should be aware of systemic risks from the rapid development of fintech firms, Beijing Business Daily reported citing former Minister of Finance Lou Jiwei. Some fintech companies have insufficient risk retention and unclear data ownership and their data collection and risk assessment process may be skewed, Lou said. He said that China should avoid a "too big to fail" approach and encourage competition by limiting the number of banks a single platform can work with at the same time.