MNI China Daily Summary: Monday, December 10

     TOP NEWS: Canada had surrendered to the 'ugly politics' of the U.S. with

the arrest of Huawei's CFO and the move could have serious consequences for its

relations with China, the English-language official newspaper China Daily said

in an editorial. The arrest, at the behest of the U.S. and her treatment since

arrest were intended to humiliate her and China, the Daily said. The U.S. has

been pressuring other countries to limit the use of Huawei's technology, and the

latest move was a sign that it had become more aggressive, the newspaper said.

(Link to the story: https://bit.ly/2BZVBaI)

     DATA: Consumer price index (CPI) was 2.2% y/y in November, decelerating

from 2.5% in October and was the smallest gain since August. Inflation in

Jan-Nov rose 2.1% from a year ago, well below the government's 3% ceiling, data

released by the National Bureau of Statistics on Sunday showed. Producers price

index (PPI) gained 2.7% in November over a year ago. It contracted 0.2% m/m,

compared with 0.4% monthly gain in October.

     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations

(OMOs) for a 32nd straight trading day Monday, leaving liquidity unchanged. No

reverse repos mature today, according to Wind Information. The central bank said

the level of liquidity in the banking system is "relatively high" and can offset

the issuance of government bond and other factors.

     RATE: The 7-day weighted average interbank repo rate for depository

institutions (DR007) decreased to 2.5174% from Friday's close of 2.5513%, Wind

Information showed. The overnight repo average increased to 2.4391% from

Friday's 2.3861%.

     USDCNY: The yuan depreciated to 6.9135 against the U.S. dollar from

Friday's close of 6.8798. The PBOC set the dollar/yuan central parity rate at

6.8693 Monday, higher than than last Friday's 6.8664.

     USDCNH: The yuan traded back up above the 6.90 level but remains below last

week's high at 6.9073, keeping the near-term outlook neutral. The yuan is

holding up in spite of the weakness seen in stocks and the continued decline in

rates. Much of the yuan's strength can be put down to dollar weakness against

the majors, although the yuan is outperforming among the region.

     STOCKS: The benchmark Shanghai Composite Index closed 0.82% lower at

2,584.58. Hong Kong's Hang Seng Index decreased 1.19% to 25,752.38.

     BONDS: The yield on the benchmark 10-year China Government Bond was last at

3.2700%, down from the closing price of 3.3050% on Friday, according to Wind

Information.

     FROM THE PRESS: Allowing commercial banks to set interest rate themselves

in a market-based approach is a better way of easing financing difficulties for

the private sector than simply seeing the central bank cutting the benchmark

rates, China Securities Journal reported Saturday, citing Sheng Songcheng,

former director of the Survey and Statistics Department at the PBOC. With

inflation at current levels, there is little room for downward adjustment of

rates. And the benchmark loan rates which are between 4.35% and 4.9% are not

high in real terms, the newspaper said, citing Sheng. (Link to the story:

https://bit.ly/2SG6d41)

     All financial activities must undergo strict market supervision, and they

musn't be hidden from regulation under the guise of technology, China Securities

Journal said Saturday, citing Pan Gongsheng, deputy governor of the People's

Bank of China. The PBOC will adopt strict supervision on financial institutions,

internet firms or fintech startups, using rules and standards consistent with

existing operations, the newspaper said citing Pan. (Link to the story:

https://bit.ly/2Ps7Os3)

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

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

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