MNI China Daily Summary: Thursday, November 22

     TOP NEWS: China stocks are trading near their strongest level relative to

U.S. stocks since early August and, based on the trends that have defined 2018

so far, this should create downside risks for USDCNH. As MNI have previously

noted, however, Chinese equity outperformance is a necessary but not sufficient

condition for a sustainable yuan rally. A reversal in equity performance needs

to translate into a rise in Chinese bond yields in order for the yuan to see a

bullish reversal. We maintain our view that equity outperformance is much more

likely than yuan outperformance. (See full story:

https://www.marketnews.com/node/1838824)

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

(OMOs) for the 20th straight day Thursday, leaving liquidity unchanged, as no

reverse repos are set to mature, according to Wind Information. The central bank

said liquidity in the banking system remains reasonable and ample.

DATA: China's National Bureau of Statistics (NBS) has published an indicator

measuring the strength of "new-economy" sectors such as technology-enabled

emerging industries, Internet-based production, services and commerce. The more

vibrant sectors of the economy measured CNY12.96 trillion in 2017, or 15.7% of

the total GDP, with an annual growth of 14.1%, according to the NBS. New-economy

shares of the primary, secondary and tertiary sectors contributed 0.7%, 6.6% and

8.4% to GDP last year, the NBS said.

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

institutions (DR007) decreased to 2.6049% from Wednesday's close of 2.6472%,

Wind Information showed. The overnight repo average decreased to 2.4397% from

Wednesday's 2.5689%.

     YUAN: The yuan appreciated to 6.9361 against the U.S. dollar from

Wednesday's close of 6.9393. The PBOC set the dollar/yuan central parity rate

stronger at 6.9391 Thursday, compared with Wednesday's 6.9449.

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

3.3875%, up from the closing price of 3.3675% on Wednesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.23% lower at

2,645.43. Hong Kong's Hang Seng Index increased 0.18% to 26,019.41.

     FROM THE PRESS: The financing difficulties faced by private-sector

enterprises are tied to the failure of financial policies and financial

restructuring. Policy makers wrongly equate resolving financial risks to

de-leveraging, instead of more precisely cleaning up bad debts while increasing

'good' bonds and lending, The Beijing News said Thursday, citing Li Daokui, an

economist who is a former official at the PBOC. Instead of hoping to lower the

overall leverage ratio, the government should set a clear goal for banks, for

example to disposal of NPLs in three years, the paper reported citing Li. A

further reason private-sector companies find it difficult to borrow from banks

is that a large volume of bank loans flow to local governments for

infrastructure construction, Li added.(Link to the story:

https://bit.ly/2R3ZW1I)

     Instead of short-term support policies such as bailouts or subsidies, full

development of private-sector firms requires tax cuts and a better business

environment with fair competition, said Financial News, the newspaper run by the

People's Bank of China, in an op-ed piece Thursday. The key to optimizing the

business environment is to enhance the status of private-sector companies,

making sure they enjoy equal treatment with SOEs in attracting talents,

receiving risk guarantees, obtaining financing and getting through

administrative processes, the newspaper said.(Link to the story:

https://bit.ly/2PP0OL6)

     China's accelerating reform and opening up of the economy, the expansion of

domestic market, growing advantages in the industrial supply chain and deepening

global cooperation have helped to hold off the negative impacts of the Sino-U.S.

trade spat and boost foreign investment in the country, wrote Peng Bo, associate

research fellow at the Ministry of Commerce, in a commentary piece run by China

Business News on Thursday. One of the Trump administration's intentions in

starting a trade war is to attack China while promoting the development of

American manufacturing, Peng said. Though it will cause certain damage to

China's economy in the short-term, it will help China break the dependence on

the U.S., expand markets and upgrade industrial capacity in the long term, Peng

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

--MNI Beijing Bureau; tel: +86 (10) 8532-5998; email: flora.guo@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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