China pumps $17b into banks for eco­nomic boost

The Pak Banker - - FRONT PAGE -

China's cen­tral bank has made $17 bil­lion avail­able to more than a dozen fi­nan­cial in­sti­tu­tions to help boost the econ­omy, it said Wed­nes­day, a day af­ter in­ject­ing nearly $100 bil­lion into two gov­ern­ment pol­icy banks. The Peo­ple's Bank of China (PBoC) pro­vided 110 bil­lion yuan ($17.19 bil­lion) to 14 fi­nan­cial in­sti­tu­tions through its medium-term lend­ing fa­cil­ity to main­tain liq­uid­ity in the bank­ing sys­tem, it said in a state­ment on its of­fi­cial mi­croblog.

The PBoC en­cour­aged banks to use the funds to sup­port small com­pa­nies, agri­cul­ture and "weak links" in the econ­omy, it said.

China's econ­omy, the world's sec­ond­largest, ex­panded 7.4 per­cent last year, its weak­est per­for­mance since 1990, and has slowed fur­ther this year, grow­ing 7.0 per­cent in each of the first two quar­ters.

The gov­ern­ment has set a tar­get of around 7.0 per­cent growth for all of 2015. On Tues­day, the cen­tral bank com­pleted putting $48 bil­lion into China De­vel­op­ment Bank and $45 bil­lion into the Ex­port-Im­port Bank of China, the of­fi­cial Xin­hua news agency re­ported. Both are pol­icy banks that lend in line with gov­ern­ment di­rec­tives. The move was to en­hance their cap­i­tal base and sup­port the econ­omy, it said.

"The in­jec­tion sug­gests the cen­tral bank is try­ing to guide funds to go to the real econ­omy, like ex­ports and in­fra­struc­ture con­struc­tion," Wang Shengzu, China economist at Bar­clays Cap­i­tal, told media.

In a bid to stim­u­late ac­tiv­ity, China has cut in­ter­est rates four times since Novem­ber and has also low­ered the re­serve re­quire­ment ra­tio -- the amount of money banks must put aside -- three times.

"The funds re­leased from ear­lier mon­e­tary loos­en­ing didn't go to the real econ- omy. In­stead, most of it went to the fi­nan­cial in­sti­tu­tions and the stock mar­ket," Wang added.

The bench­mark Shang­hai stock in­dex rose 150 per­cent in 12 months to mid-June in a bor­row­ing-fu­elled surge, be­fore plum­met­ing al­most a third in three weeks.

The Wu­tong­shu In­vest­ment Plat­form Co., which in­vests China's for­eign ex­change re­serves, car­ried out the pol­icy bank fund in­jec­tions and will be­come a share­holder in both, Xin­hua said.

China's for­eign ex­change hold­ings are the world's largest, though they fell to $3.69 tril­lion at the end of June, down from $3.73 tril­lion at the end of March.

Media re­ported China De­vel­op­ment Bank and another pol­icy bank, the Agri­cul­tural De­vel­op­ment Bank of China, plan to is­sue 1.0 tril­lion yuan worth of bonds to fund con­struc­tion projects to boost the econ­omy.

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