MNI China Daily Summary: Wednesday, December 6

     EXCLUSIVE: The People's Bank of China (PBOC) will allow market forces to

take the yuan higher as it looks to mollify the U.S. during crucial trade talks,

but the rally will be unsustainable, current and former advisors to the PBOC and

government told MNI. The yuan could appreciate to as much as 6.6 to the dollar

by the end of this year as a 90-day U.S.-China negotiation period begins

following a deal forged at a weekend dinner between presidents Xi Jinping and

Donald Trump, one source currently close to the PBOC said, adding that the

central bank will be happy to take advantage of improved market sentiment to

boost the currency. (See full story: https://www.marketnews.com/node/1842722)

     TOP NEWS: China's Ministry of Foreign Affairs on Thursday called the

detention of Huawei Technologies Co Ltd CFO Meng Wanzhou by Canadian authorities

a violation of her human rights as neither Canada nor the U.S. has "clarified"

the reason for the move. China has lodged "serious representations" with both

Canada and the U.S., asked for Meng to be immediately released and for her

rights to be protected, spokesman Geng Shuang told reporters. When asked whether

the incident could impact ongoing trade talks with the U.S., Geng avoided making

any connection between the two matters, repeating that China hopes the two sides

will accelerate negotiations and reach an agreement as quickly as possible as

per the wishes of the two countries' leaders.

     LIQUIDITY: The PBOC skipped open market operations (OMOs) for a 30th

straight trading day Thursday. The central bank injected CNY187.5 billion in

medium-term lending facilities (MLFs) to offset the maturity of the same amount

of MLFs, leaving liquidity unchanged. No reverse repos are maturing, according

to Wind Information.

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

institutions (DR007) increased to 2.4966% from Wednesday's close of 2.4390%,

Wind Information showed. The overnight repo average increased to 2.4021% from

Wednesday's 2.2020%.

     YUAN: The yuan depreciated to 6.8837 against the U.S. dollar from

Wednesday's close of 6.8662. The PBOC set the dollar/yuan central parity rate at

6.8599 Thursday, weaker than Wednesday's 6.8476.

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

3.2900%, down from the closing price of 3.3175% on Wednesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed 1.68% lower at

2,605.18. Hong Kong's Hang Seng Index decreased 2.47% to 26,156.38.

     FROM THE PRESS: China strongly protests the detention by Canadian police of

the CFO and daughter of the founder of Chinese tech giant Huawei, according to a

statement released by the Chinese embassy in Canada on its website on Thursday,

which denounced a "violation of human rights". Huawei said the company is not

aware of any misconduct by CFO Meng Wanzhou, and that the company complies with

applicable laws and regulations in the countries in which it operates, including

export controls and sanctions rules enacted by the UN, the U.S., and the EU,

China Business News reported on Thursday. Also see TOP NEWS above (Link to the

story: https://bit.ly/2FZmfnS)

     There is a widespread belief amongst investors that the yuan is unlikely to

fall below the psychological 7 level against the U.S. dollar this year, and that

it could continue to appreciate steadily in the short term, said China

Securities Journal on Thursday, citing Liu Min, analyst at FXTM, a forex trading

broker. Risk aversion in global markets has eased, as the Fed looks likely to

raise interest rates at a slower pace, and following the Sino-U.S. trade dispute

truce. This may prompt foreign investors to increase their allocation of yuan

assets, the newspaper said, citing Xie Yaxuan, chief macroeconomic analyst at

China Merchants Securities.(Link to the story: https://bit.ly/2StQoNz)

     China's State Council pledged to broaden financing channels for small and

medium-sized tech enterprises, as it announced 23 reforms to boost innovation,

the People's Daily said on Thursday. The authority will promote government

equity funds to invest in tech start-ups, which will be allowed to repurchase

the equity later, at a price based on the initial investment and accumulated

commercial loan interest rates, the State Council said.(Link to the story:

https://bit.ly/2KWZJuQ)

     The PBOC's Hangzhou branch ordered banks in Zhejiang province to boost new

loans to small and micro-sized enterprises by CNY500 billion over three years,

said Xinhua news agency on Thursday. The central bank also pledged to handle

rediscounting for private and small companies' commercial paper, and guide the

lending rate of lending to small companies steadily down, the agency said.(Link

to the story: https://bit.ly/2QBvBu9)

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

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

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