MNI China Daily Summary: Wednesday, December 12

     TOP NEWS: China had no information to share yet on the detainment of former

Canadian diplomat Michael Kovrig in China this week, foreign ministry spokesman

Lu Kang said when pressed by reporters Wednesday. "I have nothing to provide on

the media reports," Lu said when asked. Several media reports said that the

Internation Crisis Group's North East Asia Senior Adviser Kovrig was detained on

Monday. Lu told the press the ICG, an NGO that is Kovrig's current employer,

isn't registered in China as in accordance with law. The group's operations in

China can therefore be deemed as against Chinese laws and regulations, he said. 

     POLICY: The People's Bank of China (PBOC) should cut benchmark interest

rates as early as this month to prevent a sharper economic slowdown, a scholar

told MNI, arguing that monetary easing could actually help reduce the economy's

debt ratios. In addition to making its first rates cut since October 2015, the

PBOC should also lower banks' reserve requirement ratios and pump in liquidity

through open market operations to reduce the costs of business financing and

mortgages as soon as possible, Professor Zhou Hao, associate dean at the PBC

School of Finance, Tsinghua University, said in an interview.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 34th

straight trading day Wednesday, leaving liquidity unchanged. No reverse repos

mature today, according to Wind Information. The central bank said the level of

liquidity in the banking system is at a reasonable and ample level.

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

institutions (DR007) decreased to 2.5471% from Tuesday's close of 2.5826%, Wind

Information showed. The overnight repo average decreased to 2.4070% from

Tuesday's 2.4485%.

     YUAN: The yuan appreciated to 6.8893 against the U.S. dollar from Tuesday's

close of 6.8990. The PBOC set the dollar/yuan central parity rate at 6.9064

Wednesday, higher than Tuesday's 6.8996.

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

3.2750%, down from the closing price of 3.2800% on Tuesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.31% higher at

2,602.15. Hong Kong's Hang Seng Index increased 1.61% to 26,186.71.

     FROM THE PRESS: The upcoming Central Economic Work Conference is expected

to set the tone for next year's economic planning between "stabilizing growth,

structural reform and risk prevention", China Business News reported Wednesday,

citing Huang Jianhui, director of the research institute of China Minsheng Bank.

The government will adopt a more proactive fiscal policy, continuing to

stimulate demand to prop up growth while deepening the supply-side reform, Huang

said. Huang thinks industrial activity will slow, while the service sector will

rebound and grow at around 7.8% y/y in 2019. M2 is likely to rise to about 8.5%,

as money supply could be further eased to support growth, Huang said, the paper

reported.

     There is no need for the PBOC to cut benchmark deposit rates as it is not

the most effective way to direct funds into the real economy, the Securities

Daily reported, citing Xu Gao, chief economist at Everbright Securities.

According to Xu, its not the cost of finance that is making it hard for

businesses to find funding, but policy constraints. To boost further growth in

credit and social financing, an RRR cut is needed, with open market operation

(OMO) rates lowered appropriately, the report added.

     Improving the financing environment is the top priority for policymakers,

the China Securities Journal said. Banks' lending capacities are constrained by

relatively small capital adequacy ratio, low appetite for risks, as well

industry regulations, the newspaper said. Meanwhile, as downward pressure on the

economy increases, demand for funding is declining from previous levels, 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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