MNI China Daily Summary: Tuesday, December 5

     TOP NEWS: The Chinese services sector expanded in November at the strongest

pace since September, but remained weak by historical standards, according to

the latest survey of purchasing managers jointly released by Caixin magazine and

Markit. The headline index rose to 51.9 in November from 51.2 in October, the

second consecutive rise. Readings above 50 indicate expansion in the services

sector, and readings below 50 indicate contraction. The higher the PMI reading

above 50, the faster the expansion in the sector.

     TOPS NEWS: It's time for the United States to end its activist trade

protectionism, which will inflict damage on itself as well as other countries

and could even hurt the global trade system, the official People's Daily said

Tuesday, citing analysts and the Ministry of Commerce. European Union countries

and the U.S. are "played dirty" by disobeying the World Trade Organization rule

to abandon the "surrogate country approach," which allows them to engage in

broader anti-dumping trade actions, the newspaper argued. This time the U.S.

action is "too much," as it is politicizing trade issues, Zhang Jianping, head

of Regional Economic Operation Research Center under the Ministry of Commerce,

told the newspaper. He stressed American politicians repeatedly bring up the

bilateral trade imbalance to exert pressure on China, instead of viewing the two

nations' trade conflicts fairly. The U.S. actions continue to lack sincerity,

which is harmful to the advancement of bilateral trade cooperation, Zhang said.

The key element of the China-U.S. relationship is cooperation, which coexists

with competition, he said. (People's Daily)

     LIQUIDITY: The People's Bank of China skipped its open market operations on

Tuesday for the third consecutive trading day, repeating liquidity conditions in

the interbank market remain at a "relatively high level" that can absorb the

impact of maturing reverse repos. The lack of new repos resulted in a net drain

of CNY170 billion for the day, as a total of CNY170 billion in reverse repos

mature on Tuesday. There will be a total of CNY780 billion in reverse repos

maturing this week. In addition, a total of CNY188 billion in Medium-term

Lending Facilities (MLF) loans will mature on Thursday.

     RATES: Money market rates were mixed on Tuesday after the PBOC skipped its

open-market operations. The inaction resulted in a net drain of CNY170 billion

from the market. The seven-day repo average was last at 2.7852%, down from

Monday's average of 2.7743%. The overnight repo average was at 2.5485% compared

with Monday's 2.5616%.

     YUAN: The yuan fell against the U.S. dollar Tuesday after the People's Bank

of China set a weaker daily fixing. The yuan was last at 6.6123 against the U.S.

unit, rising 0.10% compared with the official closing price of 6.6187 on Monday.

The People's Bank of China set the yuan central parity rate against the U.S.

dollar at 6.6113 Tuesday, modestly weaker than Monday's 6.6105.

     BONDS: The yield on benchmark 10-year China government bonds was last at

3.9000%, up from the previous close of 3.8950%, according to Wind, a financial

data provider.

     STOCKS: Stocks were down, led lower by THE ferrous metal mining sector. The

benchmark Shanghai Composite Index closed down 0.18% at 3,303.68. Hong Kong's

Hang Seng Index was 0.53% lower at 28,983.85.

     FROM THE PRESS: The Shanghai-London Stock Connect is getting increased

attention recently from experts and officials, as they seek to advance the

program that is expected to benefit both China and the U.K., the Securities

Daily reported Tuesday. The Connect program would enable Chinese investors to

trade U.K. companies during Chinese trading hours while allowing U.K. investors

to trade Chinese companies during U.K. trading time. In the last several weeks,

four Chinese officials have made clear that one of their main tasks is to verify

the feasibility of the Shanghai-London Stock Connect program and advance it.

They are: Li Chao, vice chairman of China Securities Regulatory Commission;

Zhang Shenfeng, assistant chairman of the CSRC; Zhang Bin, the head of the

Shanghai Stock Exchange's Hong Kong Office; and Zhou Ming, chief executive

officer of China Securities Depository and Clearing Corporation, Ltd, the

newspaper said. The initiative would speed up the internationalization of

China's capital market, attract more investors to the domestic capital market,

and help Chinese investors diversify their global investment portfolios.

(Securities Daily)

     Some banks and financial companies are still making illegal consumer loans

for home purchasers or lack procedures to make sure consumer loans aren't being

used to buy property, the Securities Daily reported Tuesday. Over the past three

months, Chinese regulators have been tightening policies to prevent consumer

loans that enable home purchasers to pay their mortgages or down payments. The

newspaper also reported that banks, under pressure to reach their credit quotas

at the end of the year, have been willing to accept some "group purchases" of

loans, under which financing companies buy a series of loans at a lower interest

rate. These financing companies then sell the loans directly to consumers. The

newspaper's investigation quoted one bank saying it doesn't require invoices

showing what the loans are used for and one finance company saying "it's hard

for banks to monitor where the loans go." (Securities Daily)

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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