MNI China Daily Summary: Thursday, October 31

     EXCLUSIVE: The cancellation of the APEC summit next month in Chile may not

derail the apparent progress in trade talks between China and the U.S., as the

two countries could still sign an initial agreement elsewhere, Chinese advisors

close to the government told MNI. "Both sides will continue to work with each

other, and will consider another location for signing the agreement," said Wei

Jianguo, a former vice minister of Commerce. The cancellation won't affect the

deal signing, he said in an interview on Thursday.

     TRADE: The U.S. may choose to make further tariff exemptions as it moves to

defuse its trade dispute with China, a former senior advisor to the People's

Bank of China (PBOC) told MNI. In two rounds, the U.S has so far excluded a

total of USD12.12 billion worth of goods from tariffs it imposed on USD50

billion of imports from China, according to China Academy of Social Sciences

(CASS), China's top official think tank. U.S. President Donald Trump may

calculate that it is politically more expedient to grant further such exemptions

than to be seen to be rolling back the tariffs aimed at Beijing, said Yu

Yongding, a senior fellow of the CASS and a former member of PBOC's monetary

policy committee.

     POLICY: China needs to boost public infrastructure investment to keep

economic growth at 6.5%-7% a year, and PBOC should back up this more

expansionary fiscal policy with rate cuts, a former senior advisor to PBOC told

MNI. "Expansionary fiscal policy combined with proper monetary policy is a

precondition to help establish a bottom for economic growth," said CASS

researcher Yu Yongding. The central government has ample room to increase

spending and even expand borrowing in excess of the targeted fiscal deficit

ratio of less than 3% of gross domestic product, he said, noting that China's

fiscal position is still relatively strong and the country has large state-owned

net assets.

     DATA: China's Purchasing Manager Index (PMI) edged down to 49.3 in October

from September's 49.8, according to data released by the National Bureau of

Statistics today. The index was in the contractionary zone below 50 for the

sixth straight month. 

     LIQUIDITY: PBOC skipped open market operations for the fourth day, draining

net CNY60 billion liquidity with the same amount of reverse repos maturing

today, according to Wind Information. The total liquidity in the banking system

is reasonable and ample, PBOC said.

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

institutions (DR007) increased to 2.6962% from Wednesday's close of 2.6914%,

Wind Information showed. The overnight repo average rose to 2.5951% from

Wednesday's 2.2994%. 

     YUAN: The yuan strengthened to 7.0350 against the dollar from Wednesday's

close of 7.0584, rising 0.38%, the largest daily gain in half a month. The PBOC

set the dollar-yuan central parity rate firmer for a third trading day at

7.0533, compared with previous 7.0582. 

     BONDS: The yield on 10-year China Government Bond was last at 3.2775%, down

from the close of 3.3025% on Wednesday, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index slipped 0.35% to 2,929.06,

as investors worried that Chile's APEC cancellation may raise new hurdle for

China-U.S. trade deal. Hong Kong's Hang Seng Index advanced 0.90% to 26,906.72.

     FROM THE PRESS: PBOC may cut interest rates as early as the first quarter

next year, said Ming Ming, the chief analyst at CITIC Securities in a report,

noting that Chinese monetary policy has not been completely decoupled with that

of the U.S. and PBOC's easing has only been postponed. The Federal Reserve is

expected to cut rates again early next year, even if it suspends the rate cut in

December, said Ming.

     China's local governments should use more direct financing tools including

medium-term notes to support the construction of city clusters in the Yangtze

River Delta and Xiong'an New Area, said Securities Daily in a commentary on

Thursday. Funding from fiscal budget and bank loans is insufficient, the

newspaper said.

--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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