MNI China Daily Summary: Wednesday, January 2

     DATA: The Caixin China manufacturing Purchasing Managers Index (PMI) fell

0.5 to 49.7 in December from November, a 19-month low, in another sign that

factory activity is shrinking. New orders, which indicate future activity

levels, fell for the first time since July 2016, Caixin said in a statement

today. Many surveyed manufacturers noted sluggish demand has dampened sales. New

export orders fell for a ninth month, albeit at a slower pace, Caixin said. The

index followed the downward trend of the official PMI reported by the National

Bureau of Statistics Monday, which dropped to 49.4 from 50.0 in November, and is

now at the lowest since the 49.0 recorded in February 2016.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY30 billion in

7-day reverse repos, and CNY10 billion in 14-day reverse repos today, the 12th

trading day that the central bank has added liquidity by open market operations

(OMOs). The OMOs resulted in a net drain of CNY70 billion given the maturity of

CNY110 billion in reverse repos, according to Wind Information. The PBOC said

the OMO was intended to maintain liquidity in the banking system at a reasonable

and ample level.

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

institutions (DR007) increased to 2.4679% from Saturday's close of 2.3103%, Wind

Information showed. The overnight repo average decreased to 2.2279% from

Saturday's 2.2418%.

     YUAN: The yuan appreciated to 6.8518 against the U.S. dollar from Friday's

close of 6.8658. The PBOC set the dollar/yuan central parity rate at 6.8482

today, compared with 6.8632 on Friday.

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

3.1700%, down from the closing of 3.2250% on Friday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 1.15% lower at

2,465.29. Hong Kong's Hang Seng Index fell 2.77% to 25,130.35.

     FROM THE PRESS: China's top priority is to halt the further decline of its

economic growth, so it is necessary to adopt an expansionary fiscal policy,

supplemented with a moderately loose monetary policy, said China Business News

on Tuesday, citing Yu Yongding, a former member of the PBOC's Monetary Policy

Committee. Yu believes that China has room for expansionary fiscal policy and

the deficit-to-GDP ratio is likely to break the 3% ceiling in the future, the

newspaper said.

     Cooperation is the best choice for China and the U.S., the People's Daily

overseas edition commented today in a front-page editorial on the occasion of

the 40th anniversary of Sino-U.S. relations. The two countries should ensure

healthy competition and abandon zero-sum-game approaches. Both sides should also

pursue mutual security and avoid confrontation, the Daily said.

     China's current liquidity is not tight, and monetary policy should focus on

"targeted easing" to help the real economy, said Financial News, a newspaper run

by the PBOC. The financial sector should meet the credit demand of private and

small enterprises. Banks should develop detailed support plans for small and

micro-enterprises and customize credit quotas for them, the newspaper said.

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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