MNI China Daily Summary: Friday, June 21

     EXCLUSIVE: The People's Bank of China (PBOC) stands ready to provide

liquidity as it monitors a credit shortage hitting non-bank borrowers such as

securities firms and funds, amid concerns that difficulties to meet wholesale

debt payments could trigger asset firesales and push up financing costs for the

real economy, government advisors and market traders told MNI. The PBOC has

tried to soothe market jitters since its takeover last month of troubled

Baoshang Bank undermined previously widespread market confidence in an implicit

government guarantee of small banks' debt. Wholesale funding markets have

contracted and borrowing costs surged, as lenders reject small banks' negotiable

certificate of deposits (NCDs) offered as collateral by wealth management

companies and other non-banks, a trader at a big bank told MNI. Offers in the 7-

and 14-day repo markets have reached as high as 15%, the trader said, although

he noted that these prices came from small brokerages with poor credit and were

unlikely to be repeated for long.

     LIQUIDITY: The PBOC injected CNY30 billion via 14-day reverse repos today,

adding liquidity for the 14th straight day. This results in a net injection of

CNY30 billion as no reverse repos matured, according to Wind Information. The

injection aims to stabilize liquidity conditions through midyear, the PBOC said.

The PBOC has injected CNY355 billion this week, including CNY240 billion

medium-term lending facility (MLF), according to Wind Information.

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

institutions (DR007) fell to 2.2765% from Thursday's close of 2.2868%, Wind

Information showed. The overnight repo average decreased to 1.1000% from

Thursday's 1.2301%.

     YUAN: The yuan weakened to 6.8750 from Thursday's close of 6.8505. The PBOC

set the dollar-yuan central parity rate sharply stronger at 6.8472 today,

compared with 6.8805 set on Thursday, marking the biggest daily movement in four

months.

     BONDS: The yield on the 10-year China Government Bond was last at 3.2500%,

up from Thursday's close of 3.2475, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index rose 0.50% to 3,001.98. Hong

Kong's Hang Seng Index fell 0.27% to 28,473.71. 

     FROM THE PRESS: China's monetary policy will be based on structural easing

rather than simply following any rate cuts by the U.S. Federal Reserve,

according to Securities Daily. China's current policy tone ruled out strong

stimulus and was focused on supporting private and small companies, the daily

said on its frontpage.  There is room to selectively reduce the reserve

requirement ratio, the newspaper added.

     The yuan exchange rate will fluctuate in the near term but a depreciation

in the long run is unlikely due to China's economic fundamentals, Guo Shuqing,

the chairman of China Banking and Insurance Regulatory Commission (CBIRC), wrote

in the People's Daily published today. The yuan will continue to approach

purchasing power parity, Guo said. China must deepen reforms and continue to

open its economy to counter the trade frictions with the U.S., wrote Guo.

     The planned meeting between Chinese and U.S. presidents at the G20 Summit

later this month can only yield progress if the U.S. is willing to make a fair

deal, the Global Times said in an editorial late Thursday. No one party can

exert pressure or advance its own interests at the cost of the other under a

fair deal, the newspaper said. China is prepared for the worse-case scenarios

given the unstable U.S. attitude, the newspaper said.

--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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