MNI China Daily Summary: Wednesday, November 6

     EXCLUSIVE: The People's Bank of China (PBOC) will proceed cautiously with

additional rate cuts and easing should GDP growth dip below 6% next year and

inflation remains relatively high, unless the economy deteriorates sharply or

China-U.S. trade talks run into trouble, policy advisors and former officials

told MNI on Tuesday following an unexpected reduction in a key market lending

rate. 

     LIQUIDITY: PBOC skipped open market operations, leaving liquidity unchanged

with no reverse repos maturing today, according to Wind Information. The total

liquidity in the banking system is relatively high, PBOC said.

     RATES: The seven-day weighted average interbank repo rate for depository

institutions (DR007) increased to 2.3639% from Tuesday's close of 2.3153%, Wind

Information showed. The overnight repo average fell to 1.7821% from Tuesday's

1.8635%.

     YUAN: The yuan weakened to 6.9987 against the dollar from Tuesday's close

of 6.9975. PBOC set the dollar-yuan central parity rate higher at 7.0080,

compared with Tuesday's 7.0385. It was the biggest one-day jump since June 21.

     BONDS: The yield on 10-year China Government Bonds was last at 3.2500%, up

from the close of 3.2425% on Tuesday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index edged down 0.43% to 2,978.60, as

agriculture shares tumbled more than 5%, with defense stocks gained. Hong Kong's

Hang Seng Index edged up 0.02% to 27,688.64.

     FROM THE PRESS: China and the U.S. can't reach a deal if the U.S. doesn't

remove all additional tariffs levied since the trade dispute, Taoran Note, a

blog affiliated with Economic Daily, said late Tuesday. The phase-based

agreement must have some punitive tariffs removed, which should dictate how wide

an agreement can be reached, Taoran added.

     PBOC's cutting of medium-term lending facility (MLF) rate by 5 basis points

yesterday signalled further possible easing monetary policy to help stabilize

growth and the labour market, the China Securities Journal reported citing

analysts. The scale and pace may be reduced given the current low market rates

and considerations for the currency, inflation and structural de-leveraging, it

said.

     The yuan may fluctuate in a wider range as it remains in a depreciation

phase despite its recent strengthening, the 21st Century Business Herald

reported citing Tan Yaling, the director of the China Forex Investment Research

Institute. The currency may fall back to around 7.16 per dollar by the end of

November, then rise to between 6.98 and 7.02 by end-December, the newspaper

cited Tan as saying. The yuan rose to 6.99, a three-month high, driven by a

lower-than-expected dollar index, progress in China-U.S. trade talks, and

China's opening of financial markets, the newspaper said.

     China will further modernise its central banking system, improve the

release mechanism of base money and promote a system of benchmark and market

interest rates, Xinhua News Agency reported late Tuesday citing a document of

major decisions made by the Communist Party at the fourth plenary session of the

19th Central Committee held last week.

--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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