MNI China Daily Summary: Wednesday, June 1

POLICY: Chinese factory data perked up in May just as fiscal and monetary policies are slated to kick in for the second half of the year though the recovery momentum still needs to be further consolidated, according to analysts.

DATA: Caixin China's manufacturing PMI for May rose 2.1 points on month to 48.1, below the breakeven 50 level for the third straight month, as the impact of Covid-19 outbreaks on manufacturing activities marginally eases, financial publisher Caixin said.

LIQUIDITY: The People's Bank of China (PBOC) injected CNY10 billion via 7-day reverse repos with the rate unchanged at 2.1%. This keeps the liquidity unchanged after offsetting the maturity of CNY10 billion repos today, according to Wind Information. The operation aims to keep liquidity reasonable and ample, the PBOC said on its website.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.5889 from the close of 1.8406% on Tuesday, Wind Information showed. The overnight repo average fell to 1.4088% from the previous 1.5684%.

YUAN: The currency weakened to 6.6941 against the dollar from 6.6578 on Tuesday. The PBOC set the dollar-yuan central parity rate higher at 6.6651 on Wednesday, compared with 6.6607 set on Tuesday.

BONDS: The yield on the 10-year China Government Bond was last at 2.8000%, up from Tuesday's close of 2.7925%, according to Wind Information.

STOCKS: The Shanghai Composite Index edged down 0.13% at 3,182.16, while the CSI300 index fell 0.20% to 4,083.18. Hang Seng Index lost 0.56% to 21,294.94.

FROM THE PRESS: China should maintain rapid economic growth to absorb its growing debt, and avoid a quick rise in domestic interest rates to keep the current high level of debt sustainable and avoid systemic financial risks, wrote Zhang Ming, senior fellow of the Institute of Finance and Banking at the Chinese Academy of Social Sciences in a blog post. China’s macro leverage ratio, meaning overall debt-to-GDP ratio could be as high as 303.8% by end-2021 if local government implicit debts and debts raised by their financing vehicles are included, said Zhang. At present, local governments bear the highest default risk and their debt-to-GDP ratio is as high as 106.6%, said Zhang.

The A share market is expected to continue an upward trend into June, supported by intensive pro-growth policies, the resumption of work and production from Covid-19 lockdowns and ample liquidity, the China Securities Journal reported citing analysts. The A share market showed resilience in May even in the event of tumbling U.S. stocks overnight, with the Shanghai Composite Index rising 4.57% last month, the newspaper said. The net inflow of foreign capital to A shares was CNY16.87 billion in May, the largest monthly inflow this year, the Journal said.

Shanghai has eliminated anti-epidemic checkpoints at bridges, tunnels and other points from June 1, and removed roadblocks to restore normal production and daily life after a two-month Covid-19 lockdown, CCTV News reported. Shanghai added five local Covid-19 cases and ten infections with no symptoms on Tuesday, according to the Shanghai Municipal Health Commission.