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MNI China Press Digest: Tuesday, Dec. 12

     BEIJING (MNI) - The following are highlights from the China press for
Tuesday, Dec. 12
     The volatility of the yuan exchange rate is expected to increase to a range
of 6.4 to 6.8 against the U.S. dollar in 2018, the Economic Information Daily
said in its front page commentary on Tuesday. The greenback will weaken further
as the Federal Reserve continues its rate hike cycle while the market
expectation on the European Central Bank's withdrawal from its quantitative
easing program and rate hikes is likely to form in the second half of next year,
the newspaper said. China will insist on a policy of strengthening regulations,
curbing bubbles, preventing risks and deleveraging so that the Chinese economy
will maintain a stable growth rate above 6.4%, the commentary predicted.
Therefore, the yuan could appreciate next year and in the longer term. But
uncertainties include possible policy changes by the U.S. government, the
outlook for European monetary policy and the strength and pace of China's
regulation and reform, the commentary warned. (Economic Information Daily)
     The People's Bank of China should combine hikes in the interest rates on
its open market instruments with a targeted required reserve ratio cut to meet
the goal of preventing major financial market risks, the Securities Times said
in a front page commentary Tuesday. Money market rates have a structural problem
-- the spread between money market rates and open market operation rates remains
large, so the PBOC should raise its OMO rates following the Federal Reserve's
expected rate hike this week to smooth the monetary policy transmission
mechanism, the commentary argued. The tightness of liquidity will get worse
under pressure from the regulatory squeeze on interbank transactions and rising
market rates, so it is necessary to conduct a targeted RRR reduction to make up
the liquidity gap, particularly for small and medium-sized banks, the commentary
proposed. (Securities Times)
     Banks' entrusted business has declined rapidly this year as regulators have
strictly controlled interbank liabilities, including negotiable certificates of
deposit, the Chinese Securities Journal reported Tuesday. As of the end of the
third quarter, banks' entrusted transactions stood at CNY10.21 trillion, down
from CNY11.42 trillion at the end of the first quarter, while the value of
entrusted wealth management products fell CNY1.02 trillion compared with the
same period last year, the report said. In the future, big banks are likely to
participate directly in bonds and credit product investments in the future to
their control leverage and credit risks, while small banks will go back to
credit servicing and increased lending, the report predicted. (China Securities
Journal)
     Regulators should control the pace of the deleveraging process for
state-owned companies and set reasonable targets to avoid risks, the Securities
Daily reported Tuesday, citing analysts. Some SOEs are upstream industrial
companies which suffer from excess production capacity and the burden of
ensuring local economic growth and employment. These SOEs cannot survive a harsh
deleveraging campaign considering the large size of their debt, the report
argued. SOE deleveraging also imposes pressure on banks by increasing
non-performing loans, the report warned. Authorities should take the real
economic situation into account and consider appropriate measures. (Securities
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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