['][NI China Daily Summary: Wednesday, January 30

     EXCLUSIVE: U.S. criminal charges against Huawei Technologies and its CFO

will probably sour the atmosphere but not derail trade talks between Beijing and

Washington this week, Chinese trade advisors told MNI, although they noted that

progress in the negotiations is likely only to be partial. The charges filed on

Monday by the U.S. Justice Department against China's second-largest smartphone

supplier and its CFO Meng Wanzhou, indicated U.S. "unfriendliness", according to

Liu Hong, a director of the Ministry of Commerce's China Association of

International Trade. But they should not prevent some progress in the talks,

which come as a 90-day negotiation period agreed by presidents Xi Jinping and

Donald Trump approaches its final month, he said. "There should be advances in

intellectual property protection, forced technology transfers, and reforms of

state-owned enterprises," Liu told MNI. "But they will be limited."

     POLICY: The PBOC isn't pursuing a version of quantitative easing, a

government researcher told MNI Tuesday. "There is no need for QE; we still have

many options," such as further cutting reserve ratios or even rates, Sun

Xuegong, director of the Institute of Economic Research under the National

Development and Reform Commission, said on the sidelines of a Beijing press

briefing.

     LIQUIDITY: The PBOC maintained ample cash in the interbank market through

January, ensuring there was no shortages in the run up to the Chinese New Year

celebrations. The January MNI China Liquidity Survey saw the percentage of

traders seeing liquidity conditions as improved on the previous month rising to

68.8%, up from zero in the previous survey.

     LIQUIDITY: The PBOC injected CNY50 billion into the market via 14-day

reverse repos. It resulted in a net injection of CNY50 billion, with no reverse

repo maturing today, according to Wind Information. The PBOC said today's OMO is

to maintain overall liquidity in the banking system at a reasonable and ample

level.

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

institutions (DR007) decreased to 2.7468% from Tuesday's close of 2.7709%, Wind

Information showed. The overnight repo average decreased to 1.9762% from

Tuesday's 2.0571%.

     YUAN: The yuan appreciated to 6.7131 against the U.S. dollar from Tuesday's

close of 6.7309. The PBOC set the yuan's central parity rate against the dollar

at 6.7343 on Wednesday, compared to the 6.7356 set on Tuesday.

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

3.1250%, down from the closing of 3.1400% on Tuesday, according to Wind

Information.

     STOCKS: The benchmark Shanghai Composite Index closed down 0.72% at

2,575.58. Hong Kong's Hang Seng Index increased 0.40% to 27,642.85.

     FROM THE PRESS: China central bank's move to set up the Central Bank Bill

Swap (CBS) tool allows banks to issue perpetual bonds to replenish capitals, but

the PBOC won't directly increase the base money supply via the tool, nor will it

bear the credit risk of perpetual bonds for banks, said China Business News

today citing Sheng Songcheng, former director of the Survey and Statistics

Department at the PBOC. The move isn't a quantitative easing as the short-end

interest rate is still as high as 2.5%, and the PBOC has a variety of tools to

use, the paper said citing Sheng.

     Success of the new perpetual bonds for banks will depend largely on whether

the pricing mechanism remains market based, as different institutional investors

have different capital costs and return requirements, China Securities Journal

said citing analysts. Insurance firms, pension funds and other long-term funds

may become the main investors in these newly issued perpetual bonds, the

newspaper said.

     Local governments are likely to be given greater freedom in formulating

policies to promote foreign investment, albeit within statutory limits,

according to the latest draft foreign investment law currently reviewed by the

Standing Committee of the National People's Congress, the Beijing News reported

today. Pushing policies aimed at stimulating investment is not enough, the

newspaper said citing Du Liming, member of the NPC Standing Committee, and local

authorities should also be given the right to simplify the administrative

process to facilitate greater investment.

     Huawei must never cede to Washington pressure, as it is hard for the U.S.

to exclude the company from the telecom industry or the construction of a 5G

network, as Huawei is an industry leader with many licensing deals with major

American firms already in place, the Global Times said late Tuesday in an

editorial. The paper said "Washington is playing political tricks under a legal

pretext" and questioned why the U.S. commerce secretary, FBI director, homeland

security secretary and other senior officials attended a press conference when

the U.S. justice department announced charges against Huawei.

--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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