MNI: Local Govt Bonds, Liquidity - China Press Digest: Jan 25

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

Thursday, January 25: 

     China will likely become the world's largest issuer of local govt bonds in

five years given its fast growth in selling municipal bonds, China Daily

reported, citing industrial sources and officials. 

 - Outstanding local government bonds, totaling CNY14.74 trillion (US$2.3

trillion) last week, may increase by over 50% to surpass the U.S.; 

 - Ministry of Finance is planning to issue special local govt bonds to help

stabilize growth. 

***Comment: Issuing special government bonds is to tackle hidden debt from local

government financing vehicles(LGFVs). Local gov't debt is a problem that cannot

be solved without a profound reform of the fiscal system.

     Chinese companies will have more difficulties obtaining loans this year on

rising costs of capital and banks' shrinking credit available for lending, the

21st Century Business Herald reported. 

 - Capital costs for small and medium-sized firms increased to as high as 10% in

some provinces. New loans totaled CNY1 trillion this year, half the amount in

last year, Herald said citing unidentified banking sources.

***Comment: PBOC has pushed forward with its deleveraging campaign by reducing

short-term capital and encouraging long-term funding, while hiking the policy

interest rates through open market operations. Capital costs soared, which may

constrain growth.

     China's partial reserve requirement ratio cut taking effect today won't

inject as much liquidity as the market expected given some banks cannot qualify,

Financial News reported citing analysts. 

 - The cut will have merely temporary effect and inject about CNY300-380

billion, while the market was expecting CNY500 billion, the newspaper said.

***Comment: Central bank authorities do not want to show any signs of easing

their neutral stance on monetary policy. Some market participants have voiced

speculations whether PBOC is contradicting its own neutral positions having

injected a fair amount of liquidity recently.

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

--MNI Beijing Bureau; +86-10-8532-5998; email: beijing@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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