MNI China Daily Summary: Monday, December 3

     TOP NEWS: U.S. President Donald Trump said in a tweet on Monday that "China

has agreed to reduce and remove tariffs on cars coming into China from the U.S.

Currently the tariff is 40%." Chinese authorities have not responded. Earlier in

August, China slapped 25% tariffs on $16 billion worth of U.S. goods including

vehicles such as passenger cars and motorcycles, though it has cut tariffs on

car imports from the rest of the world to 15% from 25%.

     POLICY: The People's Bank of China(PBOC) provided Medium-term Lending

Facilities (MLF) totaling CNY403.5 billion on Monday, with a term of one year

and an interest rate of 3.30%, according to a statement on its website. The PBOC

said this was to keep the liquidity in the banking system at a reasonable and

ample level, and to meet the liquidity needs of financial institutions. The MLF

balance in the middle of November was CNY4.931 trillion.

     DATA: The Caixin China manufacturing Purchasing Managers Index (PMI) which

focuses on small and medium-sized manufacturers not surveyed by the official PMI

rose 0.1 to 50.2 in November from October, hovering just above the 50 level that

marks the level between contraction and expansion, signaling continued

stagnation of factory activities.

     USDCNY: The yuan appreciated to 6.8845 against the U.S. dollar from

Friday's close of 6.9436. The PBOC set the dollar/yuan central parity rate at

6.9431 Monday, higher than last Friday's 6.9357.

     USDCNH: The yuan has extended its recovery to send USDCNH to fresh daily

lows at 6.8795, with the pair dropping about 1% on the day. The resumption of

yuan strength follows the major rally in equity markets.

     STOCKS: The benchmark Shanghai Composite Index closed 2.57% higher at

2,654.80. Hong Kong's Hang Seng Index increased 2.55% to 27,182.04.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 27th

straight trading day Monday, leaving liquidity unchanged as no reverse repos

mature, according to Wind Information. The central bank said total liquidity in

the banking system remains at a relatively high level.

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

institutions (DR007) decreased to 2.5885% from Friday's close of 2.6778%, Wind

Information showed. The overnight repo average decreased to 2.4911% from

Friday's 2.6286%.

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

3.3700%, down from the closing price of 3.3750% on Friday, according to Wind

Information.

     FROM THE PRESS: Although China and the U.S. have agreed a 90-day trade war

ceasefire, Beijing can't yet count on the war's being over and still faces a

long haul, Xiake Dao, an online publication run by the People's Daily, said in a

commentary piece on Sunday night. China must still be on guard against extreme

situations, such as the U.S. imposing more tariffs on all Chinese exported goods

if its domestic economy worsens, the article said.(Link to the story:

https://bit.ly/2FUXTMj)

     If trade friction between the U.S. and China is removed, there is no need

for a substantial easing in China's monetary and housing policies,

http://Jiemian.com reported Monday, citing analysts from Everbright Securities.

For the first three quarters, slowing overseas demand dragged Chinese GDP growth

lower by 0.7 percentage points. If the current CNY200 billion of tariffs is not

increased, the potential impact on the furniture, electronics, machinery and

other sectors will be significantly reduced or delayed, the article said, citing

analysts from CICC. (Link to the story: https://bit.ly/2E6VdJy)

     China's companies are finding the CNY1.3 trillion in recent tax cuts not as

attractive as they might appear on the surface, China Business News said Monday,

citing Liu Shangxi, dean of the Chinese Academy of Fiscal Science. Due to the

tax collection department's lack of capacity and taxpayers' failure to comply

with tax laws, there remains a gap between what tax businesses should pay and

what it actually pays, the report said, citing Liu. Hu Yijian, professor at

Shanghai University of Finance and Economics suggests that the government should

focus on substantial tax cuts, rather than lowering the nominal rate, the report

added. (Link to the story: https://bit.ly/2U8nOmI)

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

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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