MNI China Daily Summary: Tuesday, May 29

     BEIJING(MNI) - TOP NEWS: China's Ministry of Foreign Affairs said Wednesday

the U.S. had reneged on its word by announcing it would resume tariff action

against China. China urged the U.S. to follow through on its joint statement

following trade talks in Washington, Hua Chunying, MFA spokeswoman, said at a

regular press briefing. China will take "strong measures" if the U.S. continues

to act recklessly, she said.

     TOP NEWS: China must let failing state-owned enterprises (SOEs) dissolve to

realize its goal of containing debt levels and pursuing consumption-driven

growth, a top government research official told MNI in an interview. "The soft

budget constraints on most SOEs and their cosiness with state banks lead to more

debt that may never be fully repaid," said the official, who declined to be

identified as he is not authorized to speak publicly on the matter.

     POLICY: President Donald Trump's latest threat to impose tariffs on Chinese

exports may help gain leverage for U.S. companies operating in China, the

American Chamber of Commerce said Wednesday. The tactic is "somewhat effective

in getting our Chinese friends to talk with us and take seriously our concerns,"

William Zarit, chairman of the U.S. Chamber of Commerce in China, told MNI.

However, American businesses in China don't regard the trade gap between China

and the U.S. as a big problem, Zarit said, adding a trade deficit cut is not

what these businesses need. "Much of the deficit is determined by the U.S.

domestic saving rate and other factors," he noted.

     LIQUIDITY: The PBOC injected CNY110 billion, CNY60 billion and CNY100

billion in 7-day, 14-day and 28-day reverse repos on Wednesday, with rates

unchanged at 2.55%, 2.70% and 2.85%, respectively, to counter the impact of

final settlement and payment of enterprise income taxes and maturing reverse

repos, according to a statement on its website. It resulted in CNY70 billion net

injection after CNY200 billion matured today

     CFETS-ICAP's money-market sentiment index closed at 45 on Tuesday, down

from 57 on Monday.

     MONEY MARKET RATES: 7-day repo average rose to 2.9425% from 2.8977%

Tuesday, after the PBOC injected CNY70 billion via OMO. The overnight repo

average decreased to 2.8988% from Tuesday's 2.7616%.

     YUAN: The yuan slid to 6.4243 against the U.S. dollar from Tuesday's

closing of 6.4188. Earlier today, the PBOC set the yuan central parity rate

weaker at 6.4207 on Wednesday, compared with Tuesday's 6.4021. The central bank

has set the fixing weaker for five trading days in a row, and today's fixing

marks the biggest daily drop since May 16.

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

3.6150%, up from the previous close of 3.6000, according to Wind Information.

     STOCKS: Shares declined in Shanghai, led by ceramics companies. The

benchmark Shanghai Composite Index closed 2.53% lower a 3,041.44. Hong Kong's

Hang Seng Index lost 1.4% to 30,056.79.

     FROM THE PRESS: The White House's Announcement on Tuesday night to

implement a 25% tariff on $50 billion worth of Chinese exports, including

technology related to "China Manufacturing 2025", does not suggest the US wants

to reopen the trade war but indicates that the it wants to press China harder to

gain more trade benefits, remarked Global Times on Wednesday. The announcement

sent a signal that trade tensions will be long-term in nature, at least during

Trump's term of office, the remarks said. If the tariffs come into effect, then

any agreements reached before will become invalid, China will fight back and a

comprehensive trade war will begin, the remarks said. China shall not retreat

and compromise during the negotiation as the US will likely raise the pressure

if China does so, the remarks said.

     The National Development and Reform Commission recently published a series

of fixed asset investment plans, and provinces including Liaoning, Guizhou and

others also announced measures that emphasize emerging industries like big data,

information technology and new energy, said Economic Information Daily in a

report on Wednesday. The first four months this year saw slower growth of fixed

asset investment in total but a higher growth of private investment and emerging

industries investment, the report said, citing an anonymous expert. In the

future, infrastructure investment will be relatively stable while investment in

high-tech industries and the high-end agricultural sector will continue to grow,

the expert said, cited by the report.

     China Banking and Insurance Regulatory Commission is examining nationwide

trust companies on their channel businesses, reported China Securities Journal

on Wednesday. There are a number of trust companies that have decided not to

increase their channel businesses this year, the report said, citing a source

working in the industry. Due to regulatory pressure the total scale of the trust

industry shrunk in the first quarter compared with the end of 2017, a source

close to regulators said. As most channel businesses directed funding into the

property sector and local government funding vehicles, cutting channel

businesses will make it more difficult for these sectors to raise funds, the

report said.

--MNI Singapore Bureau; +65 8233 2326; email: Asia-Editor@marketnews.com