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MNI China Press Digest: Monday, Dec. 25

     BEIJING (MNI) - The following are highlights from the China press for
Monday, Dec. 25
     China should grant more rights to local governments to issue bonds in order
to increase direct funding and establish a multilevel capital market, the China
Business News reported Monday, citing Xu Zhong, director of People's Bank of
China Research Bureau. Local governments should be able to issue bonds according
to their needs and market demand, and the central government should relax
controls on bond issuance, Xu suggested. The current central approval system has
abused the definition of municipal bonds, he added, and restricted the issuance
of local government bonds. China needs to allow the bankruptcy of local
state-owned enterprises and even local governments to reverse market
expectations that the central government will rescue them, Xu said. (China
Business News)
     The top economic priority next year is strictly controlling the growth of
local government debt, particularly the "invisible" part, the China Business
News said in a commentary on Sunday. The Ministry of Finance has stressed
recently that the market and financial institutions should dispel the illusion
that the central government will bail out indebted local governments. The
authorities will curb debt growth through regulations on local governments,
financial institutions and state-owned enterprises run by the central
government. China will set up a market-oriented mechanism to tackle defaults and
prevent expansion of risk associated with debt. Regulators will crack down on
illegal guarantees and correct bad behavior in governmental investment funds,
public-private partnership projects and government purchasing services, the
commentary said. (China Business News)
     The financial sector still harbors significant risks, and the momentum of
strict regulation will not change, the official Xinhua News Agency said in a
commentary on Saturday. To prevent or mitigate risks, China needs to build a
long-lasting, effective system via deepening reform and opening up the market.
There is no option but to improve the financial sector's ability to serve the
real economy. The aim is a new culture within the financial sector and in its
relationships with the real economy and the property market to contribute to
high-quality economic growth, the commentary said. (Xinhua News Agency)
     The neutral bias intended for monetary policy next year means that
liquidity conditions will not tighten, considering that the financial sector is
expected to shrink under strict regulation, the official People's Daily reported
Monday, citing Lian Ping, chief economist of the Bank of Communications. The
neutral principle requires regulators to use multiple tools to stabilize
volatility in liquidity conditions and resolve potential crunches, Lian said,
noting that monetary policy will maintain liquidity conditions at an appropriate
level and stabilize lending rates. Deleveraging efforts will continue, and
expected new regulations will target the off-balance-sheet transactions of
banks, financial technology firms and so-called zombie companies, Lian
predicted. (People's Daily)
--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: rich.dirks@marketnews.com
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