China announces $142 billion capital infusion into banks, first since 2008 financial crisis

China reportedly plans to inject as much as 1 trillion yuan (approximately $142 billion) into its largest state-owned banks to strengthen its economy. This capital infusion aims to enhance the banks' ability to support economic recovery amid ongoing challenges.

According to Bloomberg, the funding for this substantial capital injection will primarily come from issuing new special sovereign bonds. The details are yet to be finalised and may be subject to alterations.

This would mark the first injection of capital into China's major banks since the global financial crisis in 2008. This speaks to the seriousness of the situation with Beijing rolling out a package of stimulus measures in an attempt to revive the economy and boost sluggish markets.

China's big banks have been recently facing declining profit margins, dropping profits, and bad loans, which increased due to an economic slowdown and the disastrous property market. Li Yunze, China's top banking regulator, introduced efforts to strengthen the core tier 1 capital for the country's six largest commercial banks at a press conference this week, although no additional details were shared.

Meanwhile, several banks have begun issuing their first-ever interim dividends to help boost the stock market, despite continuing declines in profit growth and margins. The six largest banks—comprising the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of Communications, China Merchants Bank, and Postal Savings Bank—have primarily relied on retained profits to strengthen their capital buffers.

These banks are, therefore, under more strain from the authorities to lend at low interest rates to high-risk clients such as developers of real estate, home owners, and financially-stressed local government units. Capital infusion is, therefore, important to ensure that these banks play their part in stabilizing and rejuvenating the Chinese economy.

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