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Headline shares of the Mainland China equity market advanced on Monday, 07 January 2019, as broader sentiment encouraged amid optimism about trade talks between China and the United States later in the day. In afternoon trade, the benchmark Shanghai Composite Index advanced 0.74%, or 18.71 points, to 2,533.58. The Shenzhen Composite Index, which tracks stocks on China's second exchange, gained 1.4%, or 17.82 points, to 1,297.31. The blue-chip CSI300 index was up 0.64%, or 19.40 points, to 3,055.27.

Investors are optimistic about trade talks between China and the United States later in the day. U.S. and Chinese officials will begin trade negotiations on Monday in the hope of reaching a deal during a 90-day truce between President Donald Trump and his counterpart Xi Jinping. U.S. President Donald Trump said on Sunday that the talks were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal.

NEWS FROM THE PRESS: Government to step up crackdown on rare earth sector - China's government will step up efforts to eliminate illegal mining, production and smuggling of rare earth materials, while at the same time, encourage more high-end processing, the industry ministry said in new guidelines published on Friday. China is responsible for more than 90 percent of the global supply of rare earth elements, a group of 17 metals used in high-tech and strategic sectors such as renewable energy and defense. The country has spent the last decade trying to bring “order” to the sector by closing down illegal mines, restricting exports and domestic production. Small firms have been shut down and control over the industry has been put in the hands of six State-owned mining groups. Regulation and supervision in the industry had improved, but illegal mining and production continued to disrupt “market order” and damage the interests of legitimate enterprises, the Ministry of Industry and Information Technology (MIIT) said. The MIIT said it would step up efforts to prohibit illegal mining and recycling of rare earth materials, and ensure that unauthorized facilities are completely eliminated. It will also establish a “traceability system” to stop buyers from using illegal materials and ensure that producers do not exceed the output target, and will also suspend licenses of law-breaking companies. The ministry said it would work to support the development of high-end rare earth products and establish a new research center to promote new applications and improve innovation. China's annual quota for rare earth mining stood at 120,000 tons in 2018, with smelting and separation capped at 115,000 tons.

Services sector extends solid expansion: Caixin PMI - China's services sector extended its solid expansion in December, offering some cushion for the slowing economy, a private survey showed on Friday. The Caixin/Markit services purchasing managers' index (PMI) rose to a six-month high of 53.9 in December, up from 53.8 in the previous month and well above the 50-mark separating growth from contraction. It had slipped to a 13-month low in October. New export business rose at the fastest rate in six months as firms stepped up efforts to attract orders from overseas. Total new order growth eased slightly, however, pointing to softening domestic demand. Continued resilience in the services sector, which accounts for more than half of China's economy, could partly offset pressure from a manufacturing slowdown, a cooling real estate market and trade frictions with the United States. But official data suggest consumer demand and confidence have been faltering recently as the economic outlook grows more cloudy. The latest Caixin survey also showed operating expenses rose to a three-month high in December, with firms citing rising raw material prices and higher salary costs. Companies were able to raise their prices to customers only marginally in response, suggesting greater pressure on profit margins.Caixin's composite manufacturing and services PMI, also released Friday, rose to 52.2 in December from 51.9 in November. The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) for December, released last week, fell to 49.7 from 50.2 in November, marking the first contraction since May 2017. New orders — an indicator of future activity — fell for the first time in two and a half years, with companies reporting subdued demand despite some price discounting.

CURRENCY NEWS: China yuan strengthened against greenback on Monday, as central bank set stronger mid-point rate. Prior to market opening, the People's Bank of China set the midpoint rate at 6.8517, stronger by 69 basis points from previous day's central parity rate.

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