MNI China Daily Summary: Tuesday, May 29

     TOP NEWS: The People's Bank of China (PBOC) may cut required reserve ratio

(RRR) for banks to ease expected tight liquidity in June and July, the official

China Securities Journal said Tuesday in a front-page commentary. "It's expected

that the PBOC would increase OMO injection and money supply for banks to

smoothly go through inter-quarterly period" when banks face various regulatory

examinations such as macro-prudential assessment and liquidity coverage ratio

requirement at the end of every quarter, said the newspaper. The option of an

RRR cut in exchange for other requirements by the PBOC, such as one announced in

April, when banks were required to pay back the medium-term lending facility to

the central bank, could be considered, the newspaper said.

     TOP NEWS: Financial regulators need to control risks during China's further

opening up, Yi Gang, governor of the PBOC said Tuesday, according to China

Securities Journal. Financial institutions should receive licenses from the

authorities before they start their businesses, Yi stressed. Yi iterated further

opening of China's financial sector needs to coordinate well with its reform of

foreign exchange rate formation system and capital account convertibility, and

its advancement should be steady and gradual, Yi was cited as saying by the

journal.

     LIQUIDITY: The PBOC injected CNY100 billion and CNY80 billion in 7-day and

28-day reverse repos on Tuesday, with rates unchanged at 2.55% and 2.85%,

respectively, to counter the impact of final settlement and payment of

enterprise income taxes, according to a statement on its website. It resulted in

CNY50 billion net injection after CNY130 billion matured today. CFETS-ICAP's

money-market sentiment index closed at 57 on Monday, up from 42 on Friday.

     MONEY MARKET RATES: 7-day repo average rose to 2.8846% from 2.7762% Monday,

after the PBOC injected CNY50 billion via OMO. The overnight repo average

decreased to 2.7562% from Monday's 2.5288%.

     YUAN: The yuan slid to 6.4134 against the U.S. dollar from Monday's closing

of 6.3938. Earlier today, the PBOC set the yuan central parity rate weaker at

6.4021 on Tuesday, compared with Monday's 6.3962. The central bank has set the

fixing weaker for four trading days in a row, adding the total decline to almost

0.4%.

     BONDS: The yield on benchmark 10-year China Government Bond was last at

3.6150%, down from the previous close of 3.6200, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led by medicine companies after

cooling investor sentiment, with Nanjing Hicin Pharmaceutical Co. down by the

daily-limit 10%. The benchmark Shanghai Composite Index closed 0.47% lower at

3,120.47. Hong Kong's Hang Seng Index lost 0.85% to 30,531.35.

     FROM THE PRESS: China's banking regulators may soon publish rules on banks'

structural deposit products, a type of WMP with interest rate linked and

affected by prices of a financial derivative, Securities Daily reported. Banks

are increasingly using structural deposit products to replace previous WMPs with

promised interest rates for consumers after new WMP rules were issued, the daily

said. More regulations are needed to curb such illegalities, the newspaper said

citing analysts including Wu Wen, senior researcher at the financial research

center of Bank of Communications.

     The China Banking and Insurance Regulatory Commission is speeding up

process of creating specific rules for banks' WMP business, China Securities

Journal said citing Li Wenhong, director of the regulator's innovation

department. The rules would follow main regulations of the new WMP rules issued

at the end of April, but specify requirements for banks' WMPs, the newspaper

said citing Li. Risk controls of financial institutions should be enhanced,

banks' bad loans are still of concern and may rebound, and cross-market risks

still exist, Li was reported as saying by the newspaper.

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

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

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