MNI China Daily Summary: Tuesday, June 4

     TOP NEWS: China has much room for fiscal and monetary policy adjustments

amid increasing external uncertainties fueled by the U.S. "extreme pressure,"

Guan Tao, the former director of the International Payments Department at the

State Administration of Foreign Exchange wrote in the PBOC-run China Finance

magazine today. China can offset external headwinds by deepening reforms, easing

companies' costs, improving business environment as well as boosting domestic

consumption and investment, helping assure growth and stabilize the yuan at a

balanced level, Guan added.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY60 billion via

7-day reverse repos today, net-draining CNY90 billion given the maturity of

CNY150 billion reverse repos, according to Wind Information.

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

institutions (DR007) decreased to 1.8200% from Monday's close of 2.4557%,

according to Wind Information. The overnight repo average fell to 1.7200% from

1.9731% on Monday.

     YUAN: Yuan weakened to 6.9130 against the U.S. dollar from Monday's close

of 6.9097. The PBOC set the dollar-yuan central parity rate at 6.8822, compared

with Monday's 6.8896.

     STOCKS: The benchmark Shanghai Composite Index fell 0.96% to close at

2,862.28. Hong Kong's Hang Seng Index decreased 0.49% to 26,761.52.

     BONDS: The yield on the 10-year China Government Bond was last at 3.2300%,

down from Monday's close of 3.2550, according to Wind Information.

     FROM THE PRESS: Cutting the reserve requirement ratio (RRR) is not the

preferred tool for the PBOC to add liquidity, given that RRR reduction may send

a strong easing signal, China Securities Journal said in a front-page report

today. The report dampened market expectations of an RRR cut and said the PBOC

was more likely to inject liquidity through reverse repos and medium-term

lending facilities.

     The Chinese yuan tends to stabilize at 6.9 against the U.S. dollar and may

not depreciate below the key psychological level of seven in the near term,

according to Ming Ming, chief analyst at CITIC Securities. When China's Real

Effective Exchange Rate (REER) Index falls by one point, China's accumulative

export growth will increase by 0.36% y/y and exports to the U.S. will grow by

9.07% y/y, the report said.

     China's capital market is becoming more resilient as it is well supported

by market reforms, the Securities Daily said in a front-page commentary today.

The newspaper also cited improving market infrastructures and a momentum for

market opening as reasons for the resilience. A historically low market

valuation also provided the environment for the capital market to resist risks,

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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