MNI China Daily Summary: Wednesday, June 6

     EXCLUSIVE: The People's Bank of China (PBOC) may further raise policy rates

following rate hikes by the U.S. Federal Reserve to stabilize its currency and

support financial deleveraging, A senior state researcher said in interview with

MNI. "The yuan exchange rate is the main reason that the PBOC had been following

the Fed's rate increases in the past year," said Peng Xingyun, director of

Monetary Theory and Policy Department at Chinese Academy of Social Sciences

(CASS), who is also the chief economist of First Capital Securities. 

     LIQUIDITY: The PBOC injected CNY463 billion through 1-year Medium-term

Lending Facilities (MLF) loans on Wednesday with the rate unchanged at 3.30%, in

order to support micro and small enterprises and green economy, and to help the

healthy development of corporate bond markets, according to the PBOC's official

statement. The PBOC injected net CNY23.5 billion via its MLF loans today as a

total of CNY259.5 billion in MLF loans and CNY180 billion in reverse repo

matured. CFETS-ICAP's money-market sentiment index closed at 39 on Tuesday, the

same as Monday's close.

     MONEY MARKET RATES: 7-day repo average dropped to 2.7124% from 2.7283%

Tuesday, after the PBOC injected net CNY23.5 billion via MLF loans. The

overnight repo average decreased to 2.5287% from Tuesday's 2.5492%.

     YUAN: The yuan rose to 6.3891 against the dollar from Tuesday's closing of

6.4015. Earlier today, the PBOC set the yuan central parity rate at 6.4040,

stronger than Tuesday's 6.4157. The central bank has set a stronger fixing for

four out of last five trading days.

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

3.6600%, down from the previous close of 3.6700%, according to Wind Information.

     STOCKS: The benchmark Shanghai Composite Index closed 0.03% higher at

3,115.18. Hong Kong's Hang Seng Index gained 0.688% to 31,304.56.

     FROM THE PRESS: The PBOC may cut banks' reserve requirement ratios (RRR)

for targeted sectors in combination with medium-term lending facilities (MLF),

China Securities Journal said. As recent bond defaults and local governments'

acceleration of bond issuance in June may impact liquidity, the PBOC may take

action to stabilize liquidity, the newspaper said, citing various analysts,

including Ming Ming, chief fixed-income analyst of Citic Securities. 

     Financial regulators may issue more policies to support the bond market,

which has seen frequent defaults recently, China Securities Journal reported.

Regulators will better balance deleveraging and controlling risks, the newspaper

said. It cautioned large-scale bond defaults would cause liquidity risks and

even systemic financial risks, thus impacting financial stability and economic

growth. But the occurrence of bond defaults is normal in a mature bond market,

especially during China's deleveraging and tight regulation environment, it

noted.

     Hunan province is expected to issue a policy to strictly limit the number

of local government financing vehicles (LGFVs), 21st Century Business Herald

reported. The policy will require LGFVs issued by municipal level government to

be no more than three, while those at the county level should be within two, the

newspaper said. Hunan will also reduce two thirds of the LGFVs in the province

by the end of this year, it said. The province will make more efforts towards

the market-based reform of LGFVs, including reducing government influence on

state-owned companies, further regulating local governments' financing

practices, and preventing local governments from requiring LGFVs to finance

spending.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

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