MNI China Daily Summary: Thursday, June 11

     EXCLUSIVE: Part of the proceeds from a CNY1 trillion special issuance of

Chinese government bonds will be directed towards recapitalising regional banks,

officials and policy advisors said, with one source close to the regulator

telling MNI that existing shareholders will have to take losses as authorities

move to strengthen the financial system following the Covid slump. Funds from

Treasury bond issuance could be channelled into local government special funding

vehicles set up for banks running short of core Tier 1 capital, or local

administrations could take equity stakes via financial holding companies or

local state-owned enterprises, a source close to the regulator said, adding that

the People's Bank of China would eventually make up the difference if the moneys

raised were insufficient to cover shortfalls.

     POLICY: China and the U.S. should address "structural issues" in the

second-phase trade talks, and the negotiation should carry out under the

framework of globalization and multilateralism, and both sides should strive to

implement the phase-one trade deal despite the pandemic impact, said Zhu

Guangyao, a former Minister of Finance and now an advisor to the State Council.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY80 billion via

7-day reverse repos Thursday, with the rate unchanged at 2.2%. This resulted in

a net injection of CNY10 billion given the CNY70 billion maturing, according to

Wind Information. The injection aims to offset the impact of government bond

issuance and keep liquidity reasonable and ample, the PBOC said.

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

institutions (DR007) rose to 1.9799% from Wednesday's close of 1.9590%, Wind

Information showed. The overnight repo average declined to 1.7535% from the

previous 1.8416%.

     YUAN: The currency weakened to 7.0698 against the dollar from 7.0670 on

Wednesday. PBOC set the dollar-yuan central parity rate lower for a ninth day at

7.0608 compared with the 7.0703 set for Wednesday.

     BONDS: The yield on 10-year China Government Bond was last at 2.7850%, down

from the close of 2.8275% on Wednesday, according to Wind Information. 

     STOCKS: The Shanghai Composite Index declined 0.78% to 2,9420.90. Hang Seng

Index decreased 2.27% to 24480.15.

     FROM THE PRESS: The PBOC may hold back from cutting policy rates in the

money market to prevent a rise in corporate leverage ratios, the China

Securities Journal reported citing Li Yiju, a researcher at the Bank of China.

The central bank may feel less urgency to continue easing if data remain upbeat

in June, and Wednesday's financing data indicated that the economy is picking

up, the Journal said citing Wang Yifeng, the chief banking analyst with

Everbright Securities.

     Washington's strategic suppression of China is driven by a 'geopolitical

selfishness' not in the interests of the rest of the Western world, the Global

Times said in an editorial Thursday, seen as a response to U.S. State Secretary

Mike Pompeo who said the U.S. would stand with allies against "the Chinese

Communist Party's coercive bullying tactics." Many U.S. allies feel irritated as

Washington attempts to coerce others to stand on the opposite side to China, the

Global Times said.

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

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

[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]