MNI China Press Digest May 10: De-dollarization, Liquidity, EU

The following lists highlights from Chinese press reports on Monday:

• China should gradually reduce dollar-denominated assets and instead increase holdings of real resources through foreign trade, said Yu Yongding, a former PBOC advisor and a member of the Chinese Academy of Social Sciences, according to a transcript published by CF40. Mounting U.S. government debt raises questions about its debt repayment ability and makes the dollar less stable, and China may suffer major losses being the biggest dollar bonds holder, Yu said. A possible geopolitical conflict between China and the U.S. may also amplify the negative effects of the Fed's policy effect on the Chinese economy when the U.S. quits fiscal expansion and monetary easing, Yu said.
• The PBOC may inject liquidity given rising local government bond issuances in May and keep market rates around its policy rates, the China Securities Journal said citing Zhang Xu, the chief fixed-income analyst with Everbright Securities. Some market participants expect a liquidity gap of around CNY1 trillion in May when bond issuances pick up and companies remit taxes from last year, although some such as China International Capital Corp predicted a smaller gap, the newspaper reported.
• China will maintain talks with the EU over the Comprehensive Agreement on Investment, and sees giving up the deal causing regrettable losses for both European and Chinese businesses, said Global Times, responding to reports that the deal may be shelved after China's tit-for-tat sanctions against some EU members over the Xinjiang human rights issue. Suspending the deal by the EU will strain the already complicated and delicate China-EU relationship, at a time when the EU's "lukewarm" economy urgently needs a strong boost that the CAI can provide, the newspaer said.