MNI China Daily Summary: Wednesday, December 18

     EXCLUSIVE: Sales restrictions and purchase limits designed to regulate real

estate in smaller Chinese cities may be slightly relaxed next year as the

government seeks to avoid a slide in growth, but a broader easing of the

country's bubble-prone property markets is unlikely unless housing prices slide

or developers face a significant risk of defaulting on bonds, advisors at

government-backed think tanks told MNI. The omission of a key phrase from the

communique issued by the annual Central Economic Work Conference, a major policy

event which sets the economic agenda for 2020, indicates that "marginal easing

of the property sector can be expected," said Cai Zhen, director of the Real

Estate Finance Research Center at the National Institution for Finance &

Development. "More priority will be given to stabilising growth than preventing

risks next year," Cai said, after the communique left out the phrase "not to use

property as a short-term means of stimulating the economy."

     TOP NEWS: The People's Bank of China (PBOC) lowered the 14-day reverse repo

rate to 2.65% from 2.70%, according to a statement on its website. This was the

first cut to the 14-day interbank rate since a 30-bps cut on Feb 2, 2016,

according to data from Wind Information. 

     LIQUIDITY: The PBOC injected CNY50 billion 7-day reverse repos and CNY150

billion 14-day reverse repos today, adding net CNY200 billion in liquidity as no

reverse repos mature, according to Wind Information. The PBOC will pay close

attention to the market liquidity situation, conduct flexible open market

operations (OMOs), and maintain stable liquidity at the end of the year, the

central bank said on its website.

     LIQUIDITY: Liquidity conditions remained loose in December with fewer

maturing repos and a light tax payment month, the latest MNI China Liquidity

Survey showed. MNI's Liquidity Conditions Index stood at 15.4 in December,

little changed from 12.5 in November, with 76.9% of the respondents reporting an

ample supply of cash. It was the lowest end-year reading for the Index since

2014. The higher the index reading, the tighter liquidity appears to market

participants.

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

institutions (DR007) declined to 2.5472% from Tuesday's close 2.5672%, Wind

Information showed. The overnight repo average fell to 2.4672% from 2.5019%

yesterday.

     YUAN: The yuan strengthened to 6.9996 against the dollar from Tuesday's

close 7.0024. PBOC set the dollar-yuan central parity rate below 7 for the third

day at 6.9969, following 6.9971 yesterday.

     BONDS: The yield on 10-year China Government Bonds was last at 3.2325%, up

from Tuesday's close of 3.2225%, according to Wind Information.

     STOCKS: The Shanghai Composite Index edged down 0.18% to 3,017.04, dampened

by the lost of medicine and pork shares. Hong Kong's Hang Seng Index increased

0.15% to 27,884.21.

     FROM THE PRESS: China should establish a financial risk warning system with

different levels of intervention, the Securities Times reported citing Ma Jun, a

member of the PBOC Monetary Policy Commission. Local governments should take

responsibility for managing possible risks triggered by their implicit debts.

Insolvent local government financing vehicles (LGFVs) should be encouraged to

integrate with other financial vehicles with liquid assets, the newspaper cited

Ma as saying.

     There are signs of potential defaults from government infrastructure-backed

special purpose bonds as outstanding debts exceed revenues, the 21st Century

Business Herald reported citing Wang Kebing, an inspector from the Budget

Department at the Ministry of Finance. Outstanding debt from the bonds was

CNY7.39 trillion against local government fiscal revenue of CNY7.14 trillion in

2018. With the issuance of special purpose bond increasing, local government

should also broaden its sources of income from infrastructure projects instead

of relying on selling land, Wang said according to the newspaper.

     China's CPI this year is expected to be within the target range of around

3% as hog production gradually recovers, the Securities Daily reported citing

the National Development and Reform Commission. The number of live pigs in

November grew 2% m/m for the first time since November 2018. CPI may rise higher

than 4.5% in Nov early next year, as the Chinese New Year in late January boosts

demand.

--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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