By Lingling Wei
BEIJING–China’s central bank is injecting 500 billion yuan ($81 billion) into the country’s five major state-owned banks as it moves to counter a worse-than-expected slowdown in the world’s No. 2 economy, according to a senior Chinese banking executive.
The size of the injection, which will be in the form of a three-month, low-interest-rate loan to the banks, is similar to a 0.5-percentage-point cut in the amount of reserves China’s commercial banks set aside with the People’s Bank of China.
The move shows that Beijing is continuing to use targeted measures–as opposed to a broad-brush stimulus plan–to spur the economy. Officials at the Chinese central bank have been arguing that more drastic easing, such as a cut in interest rates, might cause a flood in lending that would worsen China’s debt problems and put the economy at greater risk.
The PBOC will pump 100 billion yuan each into Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications via the central bank’s standard lending facility, said the banking executive, who was briefed on the decision.
While there are no explicit conditions attached to this targeted lending, the PBOC is expected to guide the big banks to channel credit into areas the government has deemed as important to the economy, such as public housing and private and small businesses, the executive said.
The move follows a raft of disappointing economic data in August that show China’s economy is worsening rapidly despite targeted easing and other stimulus measures taken by Beijing early this year.
“We expect Beijing to introduce a slew of other easing and stimulus measures in coming weeks to re-boost confidence and restabilize growth, but the chance of universal rate cuts gets smaller,” analysts at Bank of America Merrill Lynch said in a research note. “We expect short term rates and longer term yield to fall, the economy to benefit, and markets to respond positively to this injection.”
Write to Lingling Wei at [email protected]