Shanghai: China has injected nearly $100 billion from its foreign exchange reserves into two policy banks, which lend based on government directives, to help spur the country's sluggish economy, state media reported. The central bank on Tuesday completed putting $48 billion into the China Development Bank and $45 billion into the Export-Import Bank of China, the official Xinhua news agency reported. 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," said China economist at Barclays Capital, Wang Shengzu. China's economy, the world's second-largest, expanded 7.4 per cent last year, its weakest 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.
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. "The funds released from earlier monetary loosening didn't go to the real economy. 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 bank fund injections and will become a shareholder in both financial institutions, 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. Bloomberg News reported China Development Bank and another policy bank, the Agricultural Development Bank of China, plan to issue 1.0 trillion yuan ($164 billion) worth of bonds to fund construction projects to boost the economy.
