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Needle Still Points South


Yields Bounce as Equities Make New Monthly Highs


Heading North


Bull Rally Accelerates


Economists Survey Raises 2021 CPI Forecast To 4.9%

     TOP NEWS: The World Bank on Tuesday raised its forecast for China's
economic growth this year to 6.8% from 6.7%, saying the country has maintained
strong growth on rising household incomes and consumption and greater external
demand. Referring to China's balancing act in maintaining growth stability while
advancing reform, the bank said in its China Economic Update that "2017 has been
a successful year for China on many fronts." The World Bank spoke highly of
China's overhauls under the central government's mandate, emphasizing
considerable achievements in deleveraging. But policy tightening with the goal
of rebalancing the economic structure and controlling financial risks is
expected to weigh on China's GDP growth, the bank said, projecting that growth
will ease to 6.4% in 2018 and 6.3% in 2019.
     TOP NEWS: The Chinese Embassy in the United States issued a statement on
Tuesday saying the U.S. stance of wanting to develop a partnership with China
but at the same time regarding China as a rival is contradictory. The embassy
was responding to U.S. President Donald Trump's singling out of China and Russia
in a speech on his national security strategy on Monday as rivals that
"challenge American influence, values and wealth." The embassy said the U.S.
stance is against the efforts both sides have made in international cooperation.
It stressed that China is willing to peacefully interact and cooperate with the
U.S., but that the U.S. should "adjust to" and "accept" China's development,
according to the statement. Putting a country's self-interest above that of
other countries and the world is selfishness "from tip to toe" that leads to
isolation, the statement said.
     POLICY: Property experts in China mostly expect investment in the market to
slow modestly next year, although viewpoints range from expectations that the
market will contract to those that see the possibility for double-digit growth.
Amid a tight regulatory environment, most experts and financial institutions
have projected that investment in the sector will increase from 5% to 10% next
year. Through the first 11 months of this year, growth has come in at 7.5%,
which analysts also expect to be close to the full-year figure.
     DATA: Chinese banks sold more foreign exchange to their customers in
November on yuan depreciation expectations and capital outflow pressures, data
released Monday by the State Administration of Foreign Exchange (SAFE) show.
Banks sold a net CNY31.2 billion worth of foreign exchange to clients in
November, compared with a net CNY50.1 billion purchase in October, SAFE said. It
was the first net sales after two consecutive months of net purchases, but it
was significantly lower than the net CNY186.1 billion purchase seen in November
     LIQUIDITY: The People's Bank of China announced on its website Tuesday
morning that it had injected CNY50 billion in liquidity via seven-day reverse
repos, CNY30 billion via 14-day reverse repos and CNY20 billion via 28-day
reverse repos, with rates unchanged at 2.50%, 2.65% and 2.80%, respectively. The
PBOC did not give further explanations about its operations this morning. This
resulted in a net injection of CNY20 billion for the day, as a total of CNY80
billion in reverse repos matured on Tuesday.
     RATES: Money market rates were mixed. The seven-day repo average was last
at 2.9030%, compared with Monday's average of 2.9157%. The overnight repo
average was at 2.7313%, compared with Monday's 2.7123%.
     RATES: China Development Bank announced Tuesday that it would issue on
Friday no more than CNY40 billion worth of additional 20-year bonds maturing on
Jan. 25, 2036.
     YUAN: The yuan rose slightly against the U.S. dollar after the People's
Bank of China set the fixing rate stronger for the day. The yuan was last at
6.6165 against the U.S. unit after opening at 6.6162, compared with the official
closing price of 6.6170 on Monday. The People's Bank of China set the yuan
central parity rate against the U.S. dollar at 6.6098 on Tuesday, stronger than
Monday's 6.6162.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.8950%, compared with the previous close of 3.8900%.
     STOCKS: Stocks were up, led higher by the insurance and telecommunication
sectors. The benchmark Shanghai Composite Index closed 0.88% higher at 3,296.54.
Hong Kong's Hang Seng Index was 0.96% higher at 29,329.40. 
     FROM THE PRESS: Ma Jun, former chief economist at the research bureau of
the People's Bank of China, said China should stop setting GDP goals starting
next year and instead use the unemployment rate as a macro-control goal, Caixin
Magazine reported on Monday. Ma was quoted as saying that setting GDP goals
increase financial risks and put undue pressure on the environment. He said
China has justified using GDP as a goal for macro-control of the economy by
claiming it is highly related to job creation, the report said. But that
relationship is weakening, Ma said, as the labor force population drops, the
countryside population slows its transfer to cities, and the service sector
increasingly accounts for a higher percentage of China's economy. In switching
focus to the unemployment rate, China does not necessarily have to set a
specific number in the beginning, but could set a "range" for the rate, Ma said.
     U.S. President Donald Trump has said that China and Russia are two "rival
powers" seeking to "challenge American influence, values and wealth," the South
China Morning Post reported Tuesday. In his first national security strategy
speech, Trump accused the two countries of attempting to harm U.S. security and
said China and Russia "are determined to make economies less free and less fair,
to grow their militaries." Although Trump said the United States would continue
to seek to cooperate with China, he added that his administration would raise
America's competitive game, protect its interests and advance its values. (South
China Morning Post)
     Zhu Baoliang, chief economist of the State Information Center under the
National Development and Reform Commission, predicts that China's economic
growth will reach around 6.5% next year, the China Securities Journal reported
Tuesday. Consumption will contribute more to gross domestic product growth, Zhu
said, with retail sales likely to increase by around 10%. As the global economy
increasingly recovers and domestic demand improves, export and import growth
will rise steadily, with growth in dollar terms expected to rise 5% and 8.5%,
respectively, Zhu added. Investment will slow, he said, tracking a decline in
the growth of infrastructure and property investment, with the latter possibly
falling to 6% growth, from 7.5% currently. (China Securities Journal)
     China's property market is still sizzling as developers and speculators
remain positive about further growth, the Economic Information Daily reported on
its front page Tuesday. Data released by the National Bureau of Statistics show
that property markets in Tier-2 and Tier-3 cities continue to heat up, with
new-home prices in Tier-2 cities rising 0.5% in November compared with the
previous month, 0.2 percentage point higher than October. The numbers suggest
strong or even record-high sales nationwide, the report said. Ni Pengfei,
director of the city and competition research center at the China Social Science
Academy, said that strong policy controls are providing a brake but that the
optimism of property developers, financial institutions and speculators is
creating risks. He pointed out that homeowners' ratio of debt to disposable
income had jumped to 90% currently from less than 35% in 2007. He warned that
room for homeowners' debt to increase further was falling as newly added savings
were slowing. (Economic Information Daily)
     The yuan's tight range of fluctuation against the U.S. dollar is expected
to last for some time, the China Securities Journal reported Tuesday. As the
yuan's parity and exchange rate have both weakened slightly, traders said, the
strengthening of the dollar index has placed pressure on the parity, which on
Monday dragged down the exchange rate. The dollar lacks the momentum to
strengthen further, and the market does not have an obvious indication that the
yuan will appreciate or depreciate, traders said, which will result in a small
range of fluctuation. Shenwan Hongyuan Securities predicted that the yuan
exchange rate would maintain its relative stability and strengthen slightly. As
China's international payments continue to improve, it added, the exchange rate
could appreciate by 2% to 3% and the yuan could land somewhere between 6.40 to
6.48 against U.S. dollar. (China Securities Journal)
     The National Development and Reform Commission issued guidelines Monday to
set standards for private Chinese companies' outbound investments and
operations. According to a statement on the NDRC website, the guidelines require
the companies to strengthen risk controls and improve their preparation for
possible safety-endangering accidents.
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
--MNI Beijing Bureau; +86 (10) 8532-5998; email:
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