MNI China Daily Summary: Friday, May 25

     TOP NEWS: The People's Bank of China skipped its open market operations on

Friday, citing fiscal spending nearing month-end and the return of reserve

payments that will keep liquidity conditions at a "relatively high" level. The

PBOC's operations left liquidity unchanged as no reverse repos matured today.

PBOC has drained a total of CNY60 billion by OMO this week. 

     MONEY MARKET RATES: The 7-day repo average rose to 2.8260% from 2.6934%

Thursday, after the PBOC skipped OMO. The overnight repo average decreased to

2.5060% from Thursday's 2.5141%.

     YUAN: The yuan fell to 6.3874 against the U.S. dollar from Thursday's

closing of 6.3846. Earlier today, the PBOC set the yuan central parity rate at

6.3867 Friday, weaker than Thursday's 6.3816.

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

3.6200%, down from the previous close of 3.6500%, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led lower by tech companies as

concerns over trade conflicts continue after U.S. President Donald Trump

cancelled meeting with North Korean leader Kim Jong Un. ZTE Corp. stock was

still suspended. The benchmark Shanghai Composite Index closed 0.42% lower at

3,141.30. Hong Kong's Hang Seng Index lost 0.63% to 30,566.14.

     FROM THE PRESS: Chinese Premier Li Keqiang said China and Germany will

continue their two-way investment with a more open and inclusive mindset,

according to the website of the State Council. Both countries support

multilateralism and free trade amid the current complicated international

environment, Li said during a Thursday meeting with German Chancellor Angela

Merkel. Germany is against protectionism and defends free-trade rules.

Cooperation between the two nations will contribute to continued economic

progress: Merkel. Li and Merkel expressed a willingness to cooperate in

autonomous driving, AI, and Internet of vehicles. 

     China's recent private company bond defaults reveal the risks facing

individual companies, but do not pose systemic financial risks, a top financial

regulator of the bond market said, according to Shanghai Securities News. As

China's liquidity tightens, private companies' various problems, such as high

leverage, high-risked investment activities, and unsustainable debt structures,

caused bond defaults; the new WMP rules also increases pressure on commercial

banks, reducing funds for private companies, the unidentified regulator told the

newspaper. More bond defaults are likely to happen if China's macro-economic

environment does not change significantly, but the default rate should be far

lower than banks' bad loans rates and the situation is controllable, the

regulator said. Regulators are taking measures to study and create a trading

system for transferring defaulted bonds to third-parties such as private funds

and AMCs.

     Highly leveraged property companies are facing increasing headwinds to

further debt accumulation, Economic Information Daily reported. As of the end of

March, debt ratio of half of listed Chinese property companies exceeded 70%

while around 40 reached more than 80%, the newspaper said. As property controls

continue to take effect, the government's restrictions for developers' financing

increase, and profits decline, some property companies are facing pressure.

Developers, including Evergrande, Ronshine and Minmetals Land, expressed a

willingness to reduce debt ratios amid strengthening regulation and tight

financing.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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