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China Repo Rates Diverge on Friday

     TOP NEWS: China has taken steps to quicken further reforms of its capital
market, the People's Daily said on Tuesday in a commentary published on its
overseas edition. Building a standardized, open, dynamic and resilient capital
market is important to reform and economic restructuring, the official newspaper
said. The government should improve the quality of listed companies and the
trading system, direct more medium and long-term funds into the market, and set
up an innovation-focused trading board within the Shanghai Stock Exchange and
the pilot registration system as soon as possible, the newspaper said.
     POLICY: China will support and expand bond issuances by private companies
with good standing, particularly in sectors considered strategic by the central
government, Meng Wei, spokeswoman of the top planner National Development and
Reform Commission, said in a briefing today. China will encourage banks to offer
longer-term loans, such as three-year loans, to advanced manufacturers and
private companies with strong outlook, Meng said.
     LIQUIDITY: The People's Bank of China (PBOC) skipped open market operations
(OMOs) for a second day, resulting in a net drain of CNY80 billion, which is the
amount of maturing reverse repos, according to Wind. The central bank said
current liquidity in the banking system is at a reasonable and ample level.
     RATE: The 7-day weighted average interbank repo rate for depository
institutions (DR007) decreased to 2.5057% from Monday's close of 2.5527%, Wind
data showed. The overnight repo average increased to 2.2375% from Monday's
2.2336%.
     Yuan: The yuan depreciated to 6.8082 against the U.S. dollar from Monday's
close of 6.7901. The PBOC set the yuan's central parity rate against the dollar
at 6.7854 on Tuesday, with the Chinese currency weakening from the 6.7774 set
Monday.
     STOCKS: The benchmark Shanghai Composite Index fell 1.18% to 2,579.70. Hong
Kong's Hang Seng Index decreased 0.89% to 26,954.94.
     BONDS: The yield on the benchmark 10-year China Government Bond was last at
3.1300%, down from Monday's closing 3.1400%, according to Wind Information.
     FROM THE PRESS: China's economic growth and inflation may both decline this
year, leaving less room for monetary easing but greater need for macroeconomic
measures, said the Securities Times today citing Zhang Ming, a researcher at the
Chinese Academy of Social Sciences. The focus is on whether the government will
allow the deficit ratio to rise above 3% of the GDP, local special bond issuance
to exceed CNY2 trillion, and whether stimulus will be carried through tax cuts
or spending, the newspaper said citing Zhang.
     The key to a stable yuan will depend largely on domestic fundamentals, as a
pause in the dollar's gain eases external pressure, China Securities Journal
said. The yuan is more likely to fluctuate rather than to depreciate helped by
improving expectations for the Chinese economy and inflow of foreign capital,
the newspaper said.
     China should provide greater policy support for pre-school education,
childcare and job security to reduce the cost of raising a baby after relaxing
population controls, Sina Finance reported today, citing Cai Fang, deputy
director of the Chinese Academy of Social Sciences. Beijing should also consider
postponing the retirement age and enhancing training for the elderly, or they
may not adapt to labor requirement in the future, Sina said citing Cai.
--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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