MNI China Daily Summary: Tuesday, May 28

     TOP NEWS: The central bank is confident that the yuan exchange rate will

stabilize at a balanced level, said Yi Gang, the governor of the People's Bank

of China (PBOC) in a forum today, the 21st Century Business Herald reported. Yi

noted that the spread between China's and the U.S.'s 10-year government bonds is

still at a comfortable range, and the Federal Reserve is less likely to hike

interest rates, which will help the yuan stabilize, the newspaper said. Yi also

said that the PBOC will further liberalize interest rates, such as no longer

setting the benchmark lending rate, the newspaper said.

     LIQUIDITY: The PBOC injected CNY150 billion via 7-day reverse repos,

resulting in a net injection of CNY70 billion given that CNY80 billion of

reverse repos matured today, according to Wind Information. This is to offset

the maturity of reverse repos, the PBOC said.

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

institutions (DR007) increased to 2.9000% from Monday's close of 2.7723%,

according to Wind Information. The overnight repo average fell to 2.5000% from

2.6678% on Monday.

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

of 6.8963. The PBOC set the dollar-yuan central parity rate weaker at 6.8973,

compared with 6.8924 set on Monday.

     YUAN: The stability of the yuan exchange rate has become the key focus of

the PBOC, the Securities Times said in a commentary today. China has tightened

the control of capital flows and is becoming less tolerant of yuan depreciation,

the newspaper said. China is not expecting a weakening yuan as the loss of

capital outflows caused by the devaluation will be far greater than the export

earnings obtained by a weak yuan, said the newspaper.

     STOCKS: The benchmark Shanghai Composite Index rose 0.61% to close at

2,909.91. Hong Kong's Hang Seng Index increased 0.38% to 27,390.81.

     BONDS: The yield on the 10-year China Government Bond was last at 3.3100%,

down from Monday's close of 3.3450, according to Wind Information.

     FROM THE PRESS: The PBOC is planning to roll out supporting tools to help

private enterprises with equity financing, the Securities Times reported today

citing Deputy Governor Chen Yulu. The PBOC aims to ease the financing

difficulties for private companies via innovative monetary policy tools using

credit, bond and equities, the newspaper cited Chen as saying.

     Trade friction between China and the U.S. is expected to have a decreasing

impact on the stock, bond and foreign exchange markets in the future, according

to the PBOC-run newspaper the Financial News. Citing Guo Shuqing, chairman of

China Banking and Insurance Regulatory Commission (CBIRC), the newspaper said

financial markets were not prepared when the trade issues developed last year,

but it was now understood that China's financial system could withstand external

headwinds and the impacts would be limited. Guo also said that the financial

risks were controllable, and regulators were being proactive in dealing with

risks before they developed into any crisis, according to the Financial News.

     The PBOC intends to stabilize market expectations after last week's seizure

of a small lender by unusual injections of liquidity via reverse repo at

month-end, according to the China Securities Journal. The newspaper said that,

in general, the PBOC was unlikely to conduct reverse repo at the beginning or

end of a month, but it could be expected to use more instruments if money market

rates continue to climb.

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

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