MNI China Daily Summary: Wednesday, December 20

     TOPS NEWS: China's top leaders will wrap up by Wednesday evening their

annual closed-door meeting that sets the economic agenda for next year. Taking

place just after the 19th Chinese Communist Party Congress, the meeting is also

expected to set out how China's new leadership will guide the country in

realizing its ambition to achieve global economic supremacy. The Central

Economic Working Conference (CEWC) will further expound on the spirit of

President Xi Jinping's report to the October Congress rather than laying out new

policies. The CEWC, which began on Monday, was also held just after the meeting

of the Central Committee Politburo on Dec. 8, itself a precursor of what to

expect out of the CEWC meeting.

     TOP NEWS: The People's Bank of China is likely to make an overall cut to

banks' reserve requirement ratio in the second half of 2018 as the economy slows

and the government's deleveraging campaign takes firmer hold, Zhao Yang, China

chief economist at Nomura, the Japanese global investment bank, told Market News

in an interview. Zhao, previously a senior official with the Hong Kong Monetary

Authority, also told MNI that the risk for corporate bond defaults would

increase next year and that a slowdown in China's export trade would act as a

drag on the economy. 

     DATA: Chinese bankers are more confident about the country's economic

outlook, according to the results of a quarterly survey of bankers at about

3,200 bank branches by the People's Bank of China published on Tuesday. An index

that measures bankers' confidence in macroeconomic developments rose 3.8

percentage points from the third quarter to 79.1% in the fourth quarter, the

central bank said in a statement on its website. Any index reading above 50

suggests respondents are optimistic. As for the "economic temperature" of the

country, 79.1% of the bankers surveyed indicated the current economy was at a

"normal" temperature, 4.2 percentage points higher than in the third quarter,

and 19.2% of bankers said they thought the economy was "cold," 4.3 percentage

points lower than in the previous quarter.

     LIQUIDITY: The People's Bank of China announced on its website Wednesday

morning that it had injected CNY40 billion in liquidity via seven-day reverse

repos, CNY30 billion via 14-day reverse repos and CNY10 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 CNY10 billion for the day, as a total of CNY70

billion in reverse repos matured on Wednesday.

     RATES: Money market rates were lower on Wednesday after the PBOC injected a

net of CNY10 billion via open-market operations. The seven-day repo average was

last at 2.9041%, up from Tuesday's average of 2.9024%. The overnight repo

average was at 2.7092% compared with Tuesday's 2.7247%.

     YUAN: The yuan strengthened against the U.S. dollar on Wednesday after the

People's Bank of China set a stronger daily fixing. The yuan was last at 6.5918

against the U.S. unit, rising 0.25% compared with the official closing price of

6.6075 on Tuesday. The People's Bank of China set the yuan central parity rate

against the U.S. dollar at 6.6066 on Wednesday, stronger than Tuesday's 6.6098.

The PBOC has set the fixing stronger for two straight trading days.

     BONDS: The yield on benchmark 10-year China government bonds was last at

3.9000%, unchanged from the previous close, according to Wind, a financial data

provider.

     STOCKS: Stocks were down, leading lower by the telecommunication sector.

The benchmark Shanghai Composite Index close down 0.27% at 3,287.61. Hong Kong's

Hang Seng Index was 0.15% lower at 29,208.33.

     FROM THE PRESS: The National Development and Reform Commission has launched

a nationwide carbon trading system to guide companies in meeting China's goal of

achieving a greener and higher-quality economy, the commission announced Tuesday

on its website and blog. The NDRC emphasized the importance of using the trading

system to control carbon dioxide emissions and said the program would begin with

the power generation sector. The 21st Century Business Herald reported that

China's system could eventually grow larger than any other carbon trading market

in the world.

     China needs to expand the scope of taxation for local governments in order

to establish a stable and sustainable taxation system, Finance Minister Xiao Jie

wrote in an article Wednesday in the official People's Daily. In his analysis of

how China should reform its fiscal system under the guidance of the 19th

Communist Party Congress, Xiao said that the country would continue to make

changes to its taxation process for property, personal income and local

governments, and that steady progress had been made on creating related laws. He

stressed that the rights and responsibilities of the central government and

local governments in their fiscal relationship should be clear and balanced.

(People's Daily)

     Several Chinese banks have raised their interest rates to attract more

deposits at the end of the year, including two that have lifted rates to more

than 5%, the 21st Century Business Herald reported Wednesday. One reason for the

increases is that money market interest rates have gone up. Also, banks are

competing more with one another, and they need to store more cash for the

customary surge in lending at the beginning of the new year, the report said.

Another factor is that banks are losing deposits to upstart financial technology

companies: the growth rate for deposits at banks has dropped to an annualized 2%

this year, on average, from 7.8% in 2016. Bank executives at a forum in Suzhou

said they now pay more attention to deposits because of the government's

deleveraging campaign. (21st Century Business Herald)

     A total of 15 bonds, worth nearly CNY15 billion, issued by Chinese

companies have defaulted since the start of November, the 21st Century Business

Herald reported Wednesday. The increasing frequency of bond defaults has led to

widespread delays or cancellations of issuance, affecting 760 bonds worth more

than CNY700 billion, the report said. One of the most recent cases was that of

China City Construction Corporation Limited, which announced Monday that its

tight financial situation had led it to default on CNY1 billion in bonds.

China's supply-side structural overhauls and its environmental protection

campaign, which can weigh on industrial production, have eaten into companies'

profits and made it difficult for them to manage their bond payments, analysts

said. Another reason given by the analysts is that bond market adjustments and

new refinancing rules in the stock market have made it hard for companies to

roll over their debt. (21st Century Business Herald)

     China Construction Bank's Guangdong branch director, Liu Jun, said

Wednesday at a forum that the bank would start a new business on Jan. 8 called

"rental housing deposits" -- homeowners selling rental rights for their

properties to the bank, which in turn will pay specified periods of rent back to

the homeowners, 21st Century Business Herald reported Wednesday. The banks will

then presumably try to rent out the properties -- through property rental

agencies -- at a higher price than what they paid the homeowners. The move comes

amid the Chinese government's effort to improve the residential rental market as

it aims for a long-term effective property system. (21st Century Business

Herald)

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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