MNI China Daily Summary: Wednesday, May 27

     EXCLUSIVE: The U.S. may impose travel restrictions on some Chinese

officials but is unlikely to revoke Hong Kong's special trade status this year

in response to China's move to tighten controls over the territory, a source

close to the Chinese government said, as policy advisors told MNI that Beijing

will try to limit resulting damage to its economy and strained trade relations

with Washington.

     DATA: Combined profits at China's largest industrial companies in April

fell 4.3% y/y, easing from 34.9% decline in March, according to the National

Bureau of Statistics(NBS). More than half of 41 sectors reversed profit losses,

and the automotive, special equipment, electrical machinery and electronics

sectors accounted for 19.7 percentage points of the overall gain. Despite the

significant improvement, the outlook for profits is dim given weak demand,

falling industrial product prices and high costs, NBS said.

     LIQUIDITY: Liquidity remained loose across China's interbank market in the

first 3 weeks of May, before tightening into month-end as increased bond

issuance and tax payments drained funds, the latest MNI Liquidity Conditions

Index shows. The Index climbed to 30.0 in May from 14.3 in April, a third

monthly gain, with just over half of respondents seeing 53.3% conditions looser

over the month. The higher the index reading, the tighter liquidity appears to

survey participants.

     LIQUIDITY: The People's Bank of China (PBOC) injected CNY120 billion via

7-day reverse repos with the rate unchanged at 2.20%, according to a statement

on the PBOC website. The injection aims to offset the impact of government bond

issuance and keep liquidity reasonable and ample, the PBOC said.

     RATES: The seven-day weighted average interbank repo rate for depository

institutions (DR007) rose to 2.0248% from Tuesday's close 1.8590%, Wind

Information showed. Overnight repo average increased to 2.1093% from 1.8816%

yesterday.

     YUAN: The yuan weakened to 7.1540 against the dollar from Tuesday's close

7.1354, hitting a nine-month low on concerns that the U.S. response to China's

proposed security law for Hong Kong will further escalate bilateral trade. PBOC

set the dollar-yuan central parity rate lower at 7.1092, compared with the

7.1293 set on Tuesday.

     BONDS: The yield on 10-year China Government Bonds was last at 2.7125%, up

from Tuesday's close of 2.6950%, according to Wind Information.

     STOCKS: The Shanghai Composite Index lost 0.34% to 2,836.80. Hong Kong's

Hang Seng Index edged down 0.36% to 23,301.36.

     FROM THE PRESS: China's monetary policy will focus on boosting credits and

delivering liquidity more accurately to the real economy, the China Securities

Journal said in a commentary. The central bank restarted the injection of funds

through reverse repo operations yesterday after a two-month suspension,

dispelling market speculation that its monetary policy stance may have

tightened. Premier Li's Government Work Report mentioning "guiding broad money

supply and the social financing growth to be significantly higher than last

year" signalled China may further monetary easing, the commentary said.

     China should promote greater cooperation between large and small banks in

addition to Internet banks to create a more sustainable and inclusive financial

ecosystem, according to a commentary in the Economic Information Daily. Such an

approach prevents small banks from being crowded out by larger ones seeking to

increase lending to SMEs with preferential policies, the newspaper said. Large

commercial banks are required to increase SME loans by more than 40% this year,

according to the Government Work Report.

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

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

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