China injects money into banks to spur sluggish economy
China has injected two major banks with a total of USD 100 billion from its foreign exchange reserves to help spur the country's sluggish economy.
The central bank of China announced on Tuesday that it has put USD 48 billion into the China Development Bank and USD 45 billion into the Export-Import Bank of China, AFP quoted a report by China’s official Xinhua news agency as saying.
The move, the report added, is aimed to enhance capital base of the two banks and enable them to support the economy in a more effective way.
"The injection suggests the central bank is trying to guide funds to go to the real economy, like exports and infrastructure construction," China economist at Barclays Capital, Wang Shengzu, told AFP.
China's economy, which is the world's second-largest, expanded by 7.4 percent last year, which was the lowest growth rate it has experienced since 1990. The Chinese economy slowed further during the current year, growing 7.0 percent in each of the first two quarters.
Beijing’s economic growth goal for 2015 has been set at around 7.0 percent.
In an effort to stimulate economic activity, China has already slashed interest rates four times since last November and has also lowered the reserve requirement ratio, which is 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 during 12 months that ended in mid-June after which it fell by almost a third in three weeks.
Money injection into the banks has been carried out by the Wutongshu Investment Platform Co., which is also responsible for investing China's foreign exchange reserves, and it is now a shareholder in both financial institutions.
China's foreign exchange holdings are the world's largest, though they dropped to USD 3.69 trillion at the end of June, down from USD 3.73 trillion at the end of March.
According to a Bloomberg report, China Development Bank and the Agricultural Development Bank of China are planning to issue 1.0 trillion yuan (USD 164 billion) worth of bonds to fund construction projects that aim to boost economic activity in the country.
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