MNI China Daily Summary: Friday, June 1

     TOP NEWS: The Caixin manufacturing PMI was 51.1 in May, the same as in

April. The performance shown by the Caixin PMI index, which focuses more on

smaller and medium-sized companies, once again didn't move in the same direction

as the official manufacturing PMI that came out Thursday. The Caixin PMI showed

small enterprises are suffering from weaker demand of exports, even as domestic

demand remains robust. As raw material prices rise, some surveyed companies are

laying off workers to cut production costs, resulting in lower product

inventories. the Caixin PMI pointed to less enthusiasm among businesses, even as

both indices were both positive overall.

     LIQUIDITY: The People's Bank of China injected CNY40 billion, CNY10 billion

and CNY30 billion in 7-day, 14-day and 28-day reverse repos on Friday, with

rates unchanged at 2.55%, 2.70% and 2.85%, respectively, to counter the impact

of final settlement and payment of enterprise income taxes, according to a

statement on the PBOC website. The operations resulted in CNY80 billion net

injection as no reverse repos matured today. The PBOC has injected a net of

CNY410 billion via its open market operations (OMOs) this week. CFETS-ICAP's

money-market sentiment index closed at 61 on Thursday, up from 42 on Wednesday.

     MONEY MARKET RATES: 7-day repo average increased to 2.9391% from 2.8904%

Thursday, after the PBOC net injected CNY80 billion via OMO. The overnight repo

average decreased to 2.7992% from Thursday's 2.8964%.

     YUAN: The yuan fell to 6.4119 against the U.S. dollar from Thursday's

closing of 6.4010. Earlier today, the PBOC set the yuan central parity rate

stronger at 6.4078 on Friday, compared with Thursday's 6.4144. 

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

3.6250%, unchanged from the previous close, according to Wind Information.

     STOCKS: Shares fell in Shanghai on the first day that A shares were

included into the MSCI Inc.'s index, led by medical instrument companies. The

benchmark Shanghai Composite Index lost 0.66% to close at 3,075.14. Hong Kong's

Hang Seng Index gained 0.16% to 30,515.84.

     FROM THE PRESS: The PBOC will likely cut reserve requirement ratios (RRRs)

for banks soon, Securities Daily reported, citing unidentified experts. The cut

is expected to range 0.5 to 1.5 percentage points, the newspaper said. The

recently-issued rules on wealth management products (WMPs) require financial

institutions to adjust their asset structure and businesses, causing liquidity

pressure; thus the central bank needs to take action to support these

institutions, said the Daily. As commercial banks need to pay back CNY2 trillion

in short-term debt in June, and July is a tax-collection month, the PBOC is very

likely to cut RRRs to reduce liquidity risks, the newspaper said.

     China is expected to further lower tariffs for necessities and consumer

products, China Securities Journal reported. Affected products include watches

and clocks, maternal and child supplies, and jewelry, the newspaper said. China

will also, for the third time, reduce tariffs for some technology products from

overseas and boost imports of advanced equipment, components and energy, the

newspaper said.

     As authorities clamp down on local government's illegal financing

activities, the financing of municipal investment companies is increasingly

facing difficulties, 21st Century Business Herald reported. Financing of these

investment companies, which are usually used for the construction of local

infrastructure projects, is negatively affected by the new rules regulating

wealth management product(WMP) businesses which ban WMP businesses of some

security companies and funds, the newspaper said. Financial trusts are also

tightening standards for lending to companies with government influence, as they

are less certain that local governments would help these investment companies if

any risks occur, the newspaper said.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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