MNI China Daily Summary: Tuesday, June 11

     POLICY: China said a policy announced by the State Council yesterday

allowing local government to raise capital for infrastructure projects through

the so-called special bonds shouldn't be seen as backing off efforts to contain

the country's leverage ratios. In a statement today carried by several

government ministries including the People's Bank of China, an unidentified

spokesperson again downplayed the country's debt levels are relatively low and

asserted that debt raising by local governments is under control. 

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via

7-day reverse repos, adding liquidity for the sixth day. This resulted in a net

drain of CNY50 billion given that CNY60 billion of reverse repos matured today,

according to Wind Information.

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

institutions (DR007) decreased to 2.3000% from Monday's close of 2.4823%,

according to Wind Information. The overnight repo average rose to 2.0400% from

1.8482% on Monday.

     YUAN: The PBOC is planning to issue central bank bills in Hong Kong later

this month to improve the yield curve of offshore yuan-denominated bonds,

according to a statement on the central bank's website today.

     YUAN: Yuan strengthened to 6.9138 against the U.S. dollar from Monday's

close of 6.9332. The PBOC set the dollar-yuan central parity rate at 6.8930,

compared with 6.8925 set on Monday.

     STOCKS: The benchmark Shanghai Composite Index rose 2.58% to close at

2,925.72, fueled by the rally of broker, bank, rare earth, infrastructure

shares, according to Wind Information. Hong Kong's Hang Seng Index increased

0.76% to 27,789.34.

     BONDS: The yield on the 10-year China Government Bond was last at 3.2800%,

up from Monday's close of 3.2400, according to Wind Information.

     FROM THE PRESS: Beijing's latest move to allow local governments to use the

proceeds from special bonds as project capital will boost infrastructure

investment growth to more than 8% by the end of this year, according to a report

published by CITIC Securities. Using fiscal funds to get projects started will

help to attract bank credits to fund projects, which will better support the

financing of infrastructure construction, Ming said in a report published today.

     The PBOC may continue to use targeted reserve requirement cuts, the

standing lending facility (SLF) and medium-term lending facility (MLF) to inject

liquidity and calm fears about the health of small banks, the China Securities

Journal said today. Other measures could include refinancing and rediscounting,

the newspaper said. The PBOC has introduced a credit risk hedging tool for

holders of interbank certificates of deposit (CDs) issued by the Bank of Jinzhou

on Monday, and this is funded by the PBOC's refinancing, the Journal 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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