MNI China Press Digest: Friday, Dec. 15

     BEIJING (MNI) - The following are highlights from the China press for

Friday, Dec. 15

     The impact of the People's Bank of China's rate hikes on Thursday will be

limited and the move reflected supply and demand in the market in a bid to guide

expectations, the Financial News, a journal run by the PBOC reported Friday,

citing analysts. The interest rate spread between China and the U.S has expanded

to about 160 bps, which means the Federal Reserve rate hike will not pressure

the yuan exchange rate, the report argued. The slight PBOC rate hike delivered a

signal that deleveraging and risk prevention will continue, indicating the PBOC

will raise the rates on its liquidity instruments even when it is not the proper

time to adjust its benchmark interest rates, the report said. The rate move is

also intended to balance economic growth, the curbing of asset bubbles and risk

prevention, the report said. (Financial News)

     China needs to pay close attention to the accelerating withdrawal of global

monetary policy easing and react as needed in a timely and proper manner, the

Economic Information Daily said in the front page commentary on Friday. China

should be fully prepared for the spillover effects of monetary policy in

developed countries, the commentary warned. Some emerging countries have made

moves to offset the impact by cutting interest rates, which indicates economic

growth drivers in those countries are fading. But it is hard to reverse the

impact of the world-wide monetary policy tightening trend, which could increase

the risk of capital outflows from emerging markets, the commentary noted.

(Economic Information Daily)

     The Chinese bond market is expected to see a short-term recovery after the

People's Bank of China's interest rate hike Thursday and given the stable

performance of economy, but institutions are still worried about rising pressure

on bond yields later next year, the China Securities Journal reported Friday.

The slight 5 bps rate hike was much smaller than market expectations, so the

PBOC will have to adjust its policy rates more frequently as the Federal Reserve

continues to hike its rates, the report said. The official launch of the new

regulation to control asset management products will worsen the bond market

situation. The yield on government bonds will fall in the first quarter of next

year, but there will not be a downward trend, with upward pressure later on, the

report predicted. (China Securities Journal)

     The issuance of two-year government bonds should be increased as this is a

key medium-term tenure on the government bond yield curve, the People's Daily

reported Friday, citing Zhang Jiqiang, the managing director of fixed-asset

department of China International Capital Corporation. Important price about the

government bond yield curve will be generated via an increase in the size and

frequency of two-year government bond issues, and so improve the efficiency of

compiling the yield curve, Zhang said. In addition, more two-year issues would

inject needed liquidity with that duration, Zhang said. (People's Daily)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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