MNI China Daily Summary: Wednesday, January 3

     TOP NEWS: Whether the yuan will continue to strengthen against the U.S.

dollar as it approaches the recent highs seen last September will be determined

by signals from the People's Bank of China, the Securities Times said in a

front-page commentary Wednesday. The newspaper warned that a continued rise of

the yuan could pose a risk to Chinese economic growth by hurting exports, noting

that growth in 2017 was buoyed by strong overseas demand. An excessive rise in

the yuan would also stimulate renewed appreciation speculation in the foreign

exchange market, the commentary argued. In September, the PBOC cut the reserve

requirement for trading foreign currency forwards to zero from 20%, which was

seen at the time as an attempt to rein in a further strengthening of the yuan.

The market will wait and see whether the PBOC will announce another such measure

in the period ahead, the newspaper said. (Securities Times)

     TOP NEWS: The People's Bank of China skipped open-market operations on

Wednesday, saying the liquidity level in the banking system is at a "relatively

high" level. This resulted in a net drain of CNY90 billion for the day, as the

same amount of reverse repos matured on Wednesday. It was the eighth consecutive

trading day the PBOC has skipped open-market operations.

     RATES: Money market rates were lower. The seven-day repo average was last

at 2.7273%, compared with Tuesday's average of 2.7655%. The overnight repo

average was at 2.5187%, compared with Tuesday's 2.5891%.

     YUAN: The yuan fell against the U.S. dollar even though the People's Bank

of China set the fixing rate stronger for the day. The yuan was last at 6.5103

against the U.S. unit, compared with the official closing price of 6.4967 on

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

U.S. dollar at 6.4920, stronger than Tuesday's 6.5079. The PBOC has set the

fixing stronger for nine of the past 11 trading days, with the yuan rising 1.89%

over that period. Today's fixing was the strongest since May 3, 2016.

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

3.9100%, compared with the previous close of 3.9000%.

     STOCKS: Stocks were up, led higher by the air freight and hospitality

sectors. The benchmark Shanghai Composite Index closed up 0.62% at 3,369.11.

Hong Kong's Hang Seng Index was 0.10% higher at 30,545.48.

     FROM THE PRESS: The Chinese central government will strengthen supervision

of local governments to ensure they obey their quota limits for debt issuance

and better manage their budgets, the People's Daily, the official Communist

Party newspaper, reported Wednesday, citing an unidentified official at the

Ministry of Finance. The ministry recently made public illegal financing and

debt guarantee activities of local municipalities and counties in Jiangsu and

Guizhou, two of China's most indebted provinces, the newspaper noted. Jiangsu

province punished 57 people responsible and Guizhou punished 14, and all illegal

activities have been corrected, the ministry told the newspaper. Local officials

will be held accountable for their financing decisions on behalf of the area

under their administration, the MOF official stressed, urging local governments

to speed up their debt-to-bond swaps. (People's Daily)

     China should avoid excessively tight controls on the property sector and

make preparations to prevent large fluctuations in that market, Zhou Shinian,

assistant researcher of the economic forecast department at the State

Information Center, a government think tank under the National Development and

Reform Commission, wrote in an article published by the China Securities Journal

on Wednesday. The biggest worry is increasing pressure on property company

financing, which could intensify the risks to their debt repayment, Zhou said.

In addition, the rapid increase in the supply of land for affordable rental

housing could strengthen expectations that prices of houses sold by developers

will rise because the supply of land for such houses will decrease, he said.

Zhou stressed the need to diversify financing options for property companies to

include financial trusts, real estate investment trusts, investment funds, and

asset management plans. Zhou also called for a long-term plan for management of

the property sector, in particular calling for increasing the cost of holding

multiple properties by finally implementing the long-discussed property tax on

residential properties. (China Securities Journal)

     The State Bank of Pakistan, the country's central bank, announced that

Pakistani trade and financial transactions with China can now be denominated in

yuan, the Associated Press reported Wednesday. Pakistan aims to increase trade

and economic ties with China and rein in capital outflows by repatriating

profits, according to AP. The central bank said facilities for letters of

credit, transaction clearance and financing denominated in the yuan have been

put in place, AP reported. (Associated Press)

--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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