MNI China Daily Summary: Wednesday, January 16

     POLICY: China's Ministry of Finance (MOF) will enhance the role of China

Government Bonds(CGBs) as a main tool for central bank open market operations,

expanding their use in the transmission of monetary policy, Guo Fangming, deputy

director of the Treasury Department under the MOF told a economic forum today.

The move could improve coordination between CGB issuance and money supply, a

bond analyst told MNI, noting the People's Bank of China(PBOC) could inject

liquidity via direct purchases of CGBs from the MOF, rather than the current

operations that see the PBOC lending to financial institution using outstanding

CGBs as collateral. 

     TRADE WAR: China and U.S. teams of negotiators are still working to carry

out the consensus by Presidents Xi Jinping and Donald Trump agreeing to resolve

the two sides' trade frictions, Ren Hongbin, assistant to the Minister of

Commerce, told reporters in Beijing today. Ren declined to comment directly on

the progress of the trade talks.

     DATA: The average price of new homes in 70 major cities, excluding

subsidized units, increased 10.6% y/y in December, the fastest gain in 19

months. It compared with a 10.3% gain in November, according to MNI

calculations. On m/m monthly basis, the average price gained 0.8%, cooling from

October's 1.0% growth. Gains in housing prices in the top 15 cities followed the

trend -- accelerating on year but decelerating on month. The gain of 5.7% y/y

marked the sharpest since August 2017 while the growth of 0.7% m/m eased from

0.8% in November.

     LIQUIDITY: The PBOC today injected CNY350 billion via 7-day reverse repos,

and CNY220 billion through 28-day reverse repos, adding liquidity for a third

day. It resulted in a net injection of CNY560 billion given the maturity of

CNY10 billion reverse repos today, according to Wind Information. The PBOC said

it is currently the peak of tax season and total liquidity in the banking system

is falling rapidly. 

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

institutions (DR007) decreased to 2.6137% from Tuesday's close of 2.6463%, Wind

Information showed. The overnight repo average increased to 2.2832% from

Tuesday's 2.2414%.

     YUAN: The yuan depreciated to 6.7550 against the U.S. dollar from Tuesday's

close of 6.7544. The PBOC set the dollar-yuan central parity rate weaker at

6.7615, compared with 6.7542 on Tuesday.

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

3.0900%, down from the closing of 3.1400% on Tuesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed at 2,570.42, little

changed from Tuesday. Hong Kong's Hang Seng Index increased 0.27% to 26,902.10.

     FROM THE PRESS: Although the yuan faced depreciation pressure in 2018, the

market has adapted to the fluctuations and there were no panics in the forex

market, China Business News reported late Tuesday, citing Guan Tao, former

director of the Balance of Payments Department at the State Administration of

Foreign Exchange. This is positive progress that will be conducive to the

liberalization of the foreign exchange market. "To liberalize the market, we

must let the exchange rate leverage play an important part, and allow investors

to buy at a low price and sell at a high price", Guan said, CBN reported.

     Local governments are strictly banned from using reserve land as a

collateral for financing, referred to as illegal financing, and are forbidden to

move reserve land to local state-owned enterprises(SOEs) as an asset, a

government document has laid out, the Economic Information Daily reported,

citing the Ministry of Natural Resources. The confirmed regulations say all

local governments may no longer take land reserve loans from banks, and land

reserve agencies shall not provide guarantees for any debt, the newspaper said

citing the Ministry.

     The State-owned Assets Supervision and Administration Commission(SASAC)

will tighten control over the financial business and debt risk of state-owned

key enterprises this year, China Securities Journal said. Key SOEs' financial

business will be limited to adding new investment projects, and those who launch

financial derivative business must prohibit any speculative activity, the

newspaper said, citing SASAC.

--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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