MNI China Daily Summary: Tuesday, December 4

     EXCLUSIVE: Some Chinese government advisors expect trade war hostilities to

flare again between Beijing and Washington and to last years despite the 90-day

truce agreed by presidents Xi Jinping and Donald Trump, although others hoped

the acute phase of the dispute might be drawing to a close. While the deal,

under which China has offered to buy more American products and the U.S. will

hold off from boosting tariffs on $200 billion in Chinese imports during a

90-day negotiation period, reinforces hopes that both sides are willing to seek

a solution, the Chinese government should nonetheless prepare for a

re-initiation of hostilities, several advisors told MNI. (See full story:

https://www.marketnews.com/node/1841893)

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

(OMOs) for a 28th straight trading day Tuesday, 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.

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

depository institutions (DR007) decreased to 2.5622% from Monday's close of

2.5885%, Wind Information showed. The overnight repo average dropped to 2.3976%

from Monday's 2.4911%.

     USDCNY: The onshore yuan appreciated to 6.8401 against the U.S. dollar

after Monday's close of 6.8885, rising 484 bps to the strongest level since Sept

21. The PBOC set the dollar-yuan central parity rate at 6.8939 Tuesday, 492 bps

stronger than Monday's 6.9431.

     USDCNH: The offshore yuan continued to extend its recovery to send USDCNH

to fresh daily low at 6.8334, with the pair rising over 1100 bps over the last

two day. 

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

3.3100%, down from the 3.3700% closing on Monday, according to Wind Information.

     STOCK: The benchmark Shanghai Composite Index gained 0.42% to 2,665.96, and

Hong Kong's Hang Seng Index rose 0.29% to 27,260.44. 

     FROM THE PRESS: Chinese regulators may allow individual investors to trade

local government debt through designated commercial banks next year, Caixin

reported on Tuesday without stating where it obtained the information. This

relaxation will raise disclosure requirements placed on local governments, as

their lack of financial transparency has long been criticized, Caixin said.

About 90% of the investors in Chinese local government debt are commercial

banks, while nearly 70% of buyers of U.S. municipal bonds are individuals, the

report said.

     (Link to the story: https://bit.ly/2QDX7aI)

     Chinese policymakers should strengthen counter-cyclical regulation, said

Shanghai Securities News on Monday night, citing a report written by Yi Gang,

governor of the People's Bank of China. Policymakers should adopt tools to

ensure a soft landing when the economy is overheated or there is a bubble in

asset prices. In the event of a recession or external shock, authorities must

promptly stabilize the financial markets to boost confidence, Yi said according

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

     Chinese authorities are mulling reducing tariffs on vehicles imported from

the U.S., but it is unclear when and to what extent the tariff will be lowered,

the Securities Daily said Tuesday, citing an anonymous insider. The source

expected the tariff will fall to 15%, from the 40% imposed in July as a response

to U.S. tariffs, the Daily said (U.S. President Donald Trump tweeted Monday

suggesting a similar move from China). Although it will take time yet for a

formal decision, one is expected before the end of the year, the newspaper said

citing the insider. (Link to the story: https://bit.ly/2E2mOuu)

     The yuan exchange rate is unlikely to fall below the psychological 7 mark

against the U.S. dollar in the last month of this year given external risks have

eased, said China Securities Journal in its front-page on Tuesday. An increasing

number of market participants believe the U.S. economy is gradually approaching

a turning point, as fiscal stimulus starts to fade and the lag effect of raising

interest rates begins to appear. The Fed has limited room for further interest

rate hikes, the Journal said. Meanwhile, the Sino-U.S. rate spread remains

stable at a low level, which will also help to ease depreciation pressure on the

yuan, the newspaper said. (Link to the story: https://bit.ly/2E1ralY)

     China's monetary and fiscal policies will be more active for the year

ahead, but raising the fiscal deficit-to-GDP ratio above the 3% ceiling could

discourage private investment, said Guan Qingyou, head of the Rushi Advanced

Institute of Finance, cited on Tuesday by Lujiazui, a financial magazine run by

China Business News. (Link to the story: https://bit.ly/2EdGwVg)

--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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