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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