China Pumps a Trillion Yuan into State Banks to Prop Up Slowing Economy

China's Ministry of Finance has announced a massive capital injection into the country's financial sector: three major state banks and five insurers will receive tens of billions of dollars in fresh capital. The plans were reported on Sunday by the state news agency Xinhua.

Among the recipients are the Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China, and China Export & Credit Insurance Corporation (Sinosure). According to Chinese authorities, the move is meant to bolster the reliability of financial institutions, strengthen their resilience to risk, and improve their capacity to serve the real economy.

As the BBC notes, the step is part of Beijing's ongoing effort to pull the world's second-largest economy out of a pile-up of problems that have built over recent years. China is grappling with weak domestic demand, a collapsing property market and an ageing population. On top of that, Beijing has had to respond to rising trade tensions with the West and the fallout from the war in Iran — above all its impact on oil prices.

The BBC assesses that Beijing is trying to restructure its economy while facing several challenges at once: a shrinking workforce, a prolonged property market slump, and an ongoing trade and technology rivalry with the United States.

Growth Slows Down

The state funds are designed to strengthen banks and insurers so they can lend more actively to businesses and other sectors of the economy. The state-run Global Times notes that the measure "will give banks and financial institutions more resources to channel credit into the real economy", while also boosting their ability to withstand external shocks amid global financial uncertainty.

China's economy grew 4.3% year-on-year in the second quarter — a notable slowdown from the 5% growth recorded in the first quarter.

For this year, Beijing has set a growth target of 4.5–5% — the lowest official growth target China has set since 1991.

By strengthening state banks and insurers, authorities hope to create an additional tool for supporting the economy: stronger financial institutions will be able to extend more credit to businesses and finance investment. Chinese President Xi Jinping has long regarded the stability of the financial system as one of the key pillars of national security.

Source: novinky.cz