Chinese repo rates have edged higher,.........>

CHINA: Chinese repo rates have edged higher, although the move has been limited,

with the benchmark 7-Day repo rate last at 3.20%, after closing at 2.55% on

Friday. The state taking ownership of small lender Baoshang Bank to address its

"serious credit risk" has triggered some worry re: other small lenders.

- Reverse repo operations have resulted in some fairly limited net injections at

the start of this week, but the PBoC must balance liquidity levels with the

value of the yuan. The PBoC has also offered CNY80bn worth of 3-Month Tsy

deposits to banks, likely with aa view to help with any liquidity issues. The

China Securities Journal has noted that the Bank could be expected to use more

instruments if money market rates continue to climb.

- Fitch have stated that the Baoshang Bank seizure is "indicative of general

vulnerabilities among the country's smaller banks. The decision to acknowledge

and address Baoshang's financial problems publicly is a step forward in

improving transparency and disclosure, but it is too early to conclude if such a

"takeover" will ultimately lead to better governance at the weaker banks and

reduce contagion risks to the system."