MNI China Daily Summary: Wednesday, December 19

     POLICY: The 7-day weighted average interbank repo average rate for

depository institutions (DR007) declined by 2 basis points to 2.67% from

yesterday, the People's Bank of China (PBOC) said in a statement on its website

today. The central bank has injected total CNY400 billion of liquidity via

reverse repo for three consecutive trading day this week, following its

36-day-long suspension of open market operations. The liquidity of the banking

system is kept reasonable and ample, and the market interest rate is moving

steadily, the PBOC said.

     TRADE WAR: China and the U.S. held a vice-minister rank dialogue on

Wednesday to discuss trade issues of mutual concerns, the commerce ministry said

in a statement on its website, without disclosing further details.

     LIQUIDITY: The PBOC injected CNY40 billion via seven-day reverse repos, and

CNY20 billion through 14-day reverse repos today, adding liquidity for a third

straight trading day. It resulted in a net injection of CNY60 billion in

liquidity, as no reverse repos mature today, according to Wind Information.

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

institutions (DR007) decreased to 2.6726% from Tuesday's close of 2.6898%, Wind

Information showed. The overnight repo average decreased to 2.6417% from

Tuesday's 2.6627%.

     YUAN: The yuan depreciated to 6.8954 against the U.S. dollar from Tuesday's

close of 6.8927. The PBOC set the dollar/yuan central parity rate at 6.8869

today, as the yuan weakened a touch from Tuesday's 6.8854.

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

3.3500%, down from the closing price of 3.3725% on Tuesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 1.05% lower at

2,549.56. Hong Kong's Hang Seng Index increased 0.20% to 25,865.39.

     FROM THE PRESS: It is still possible for the central bank to cut the

Reserve Requirement Ratio (RRR) in the next three to six months, as the

authorities aim to drain short-term liquidity but inject long-term liquidity,

said China Securities Journal today citing Hu Yuexiao, chief macroeconomic

analyst at Shanghai Securities. Hu also pointed out that the current 8% y/y

growth of M2 is at the bottom of the range that policymakers would allow, so the

money supply could rebound going forward to help stabilize economic growth and

prevent risks, the newspaper said.

     Going forward, policies to reduce tariffs and promote trade will continue

to be introduced, the Shanghai Securities Journal said today citing Mei Xinyu, a

researcher at the Institute of Foreign Trade under the Ministry of Commerce. The

policy direction for expanding imports will not change, with imports expected to

maintain a growth rate of 10% or higher next year, the newspaper citing Gao

Lingyun, a researcher at the Institute of World Economics and Politics under the

Chinese Academy of Social Sciences.

     In the two months since the PBOC gave guidance for new bond finance support

tools, there have been 182 bond launches, totalling CNY111.12 billion, issued to

ease financing difficulties for private companies, 21st Century Business Herald

reported today citing data from Wind terminal. Some local state-owned

enterprises have set up funds to bail out private companies suffering from

liquidity problems. Though these two moves have significantly increased support

to private enterprises, it is still far from what the central government

required, the newspaper citing Fan Wei, a deputy fixed-income manager at brokers

Shenwan Hongyuan.

--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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