MNI China Daily Summary: Wednesday, May 29

     POLICY: China could further ease monetary policy as pressure on the economy

grows, a move contrary to keeping the yuan below the key 7 level against the

U.S. dollar, Yu Yongding, a former member of the People's Bank of China (PBOC)

monetary policy committee, told the Annual Conference of Financial Street Forum

2019. "We may further ease monetary policy to underpin economic growth when we

face domestic and external pressures, then the problem will be if we would allow

the currency to break the 7 level," said Yu, now a senior research fellow at the

Chinese Academy of Social Sciences. Yu said the appreciation of the yuan in the

early part of the year has hurt China's exports, a problem that will get worse

if the U.S. continues to increase tariff levels.

     POLICY: Foreign financial service providers aiming at the Chinese market

should set up subsidiaries and obtain licenses in China, and not attempt to

serve the market via digital platforms, an official from China's top foreign

exchange regulator said today. "China is currently not ready to open its online

sector to foreign financial companies," said Sun Tianqi, chief accountant of the

State Administration of Foreign Exchange (SAFE) in a speech at the Annual

Conference of Financial Street Forum 2019. The comments came despite WTO

regional bilateral agreements paying greater attention to the opening up of

online cross-border financial services as fintech advances gather pace.

     LIQUIDITY: Liquidity in China's interbank market remained tight in May,

with tax payments and a less expansive policy stance by the central bank acting

as a drain, the latest MNI China Liquidity Survey shows. The May MNI China

Liquidity Index saw 41.7% of respondents reporting liquidity conditions

deteriorating further from April's level, with a further 33.3% seeing the

situation unchanged. Last month, 64.3% saw conditions worsen from the previous

month. The takeover of a troubled commercial bank, Baoshang Bank, by the PBOC

spooked the money market, raising concerns of tighter conditions and

regulations.

     LIQUIDITY: The PBOC injected CNY270 billion via 7-day reverse repos,

resulting in a net injection of CNY250 billion given that CNY20 billion of

reverse repos matured today, according to Wind Information. This is to keep the

liquidity in the banking system at a reasonable and ample level, the PBOC said.

     RATE: The 7-day weighted average interbank repo rate for depository

institutions (DR007) fell to 2.8200% from Tuesday's close of 2.8643%, Wind

Information showed. The overnight repo average decreased to 2.1000% from

Tuesday's 2.7868%.

     YUAN: The Chinese currency strengthened to 6.9100 against the dollar from

Tuesday's close of 6.9130. The PBOC set the dollar-yuan central parity rate

weaker at 6.8988, compared with Tuesday's 6.8973.

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

3.2900%, down from Tuesday's close of 3.3100, according to brokers.

     STOCKS: The benchmark Shanghai Composite Index rose 0.16% to 2,914.70. Hong

Kong's Hang Seng Index decreased 0.57% to 27,235.71.

     FROM THE PRESS: China, the world's largest producer of rare earths, will

primarily serve its domestic needs and the legitimate demands from other

countries, Xinhua News Agency reported today. Citing comments from an unnamed

National Development and Reform Commission official on possible leverage, Xinhua

noted the Chinese people would not allow the U.S. to use exported rare earth

materials to suppress China's development.

     The U.S. has no right to make irresponsible remarks on China's industrial

policy, said Huang Hanquan, a researcher at the government-back think tank

Chinese Academy of Macroeconomic Research, the Economic Daily reported.

Washington has been largely subsidizing its agriculture, high-tech and

manufacturing sectors, so its criticism on China's industrial policy is

hypocritical and bullying of China, Huang added. According to the report, Huang

said China's industrial policy is also in the process of becoming more inclusive

and conducive to fair competition.

     Chinese economy is expected to meet the growth target of 6.4% this year,

the China News Service said today citing the latest Economic Blue Book published

by the Chinese Academy of Social Sciences (CASS). Though China still faces the

challenges of industrial overcapacity, declining corporate profits and

accumulating financial risks, Q1 economic indicators beat expectations, the

newspaper said citing the report. The growth may hit the bottom in Q2 or Q3 and

then slowly rebound, the newspaper cited Lou Feng, a researcher at CASS as

saying.

     Real estate is not the main driving force for China's high-quality economic

development, and China must stop relying on the property market to prop up

growth, the Economic Information Daily said today. Considering the size of the

real estate sector, the high proportion of family wealth that housing accounts

for, and the large scale of real estate finance, the stability of the housing

market is more important than ever, the newspaper added.

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

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