China intends to provide a capital boost of $142.39 billion (1 trillion yuan) to significant banks in order to rescue them.
China is on the brink of injecting nearly $142.4 billion (1 trillion yuan) to enhance the capacity of its largest state bank to support its slow markets and nose-diving economy. Beijing intended to issue new sovereign bonds to finance the greatest rescue of the Chinese government since the 2008 global financial crisis, according to reliable sources.
Bloomberg reported that the decision was consistent with Beijing’s extensive stimulus measures to stimulate its underperforming economy, which were implemented in response to the Q2 losses disclosed by four of its five largest lenders. In response to government requests to stimulate declining loan demand, the banks had reduced interest rates. Deflationary pressures were a threat to China’s growth objective, prompting analysts to advocate for additional fiscal stimulus.
China was contemplating the possibility of providing $142 billion in capital to its largest banks in order to stimulate its declining economy. However, the decision is not yet definitive; it is still in the very early phases. On September 24, the Chinese Central Bank disclosed its intended economic stimulus package in an effort to alleviate deflationary pressures and re-establish confidence in the world’s second-largest economy.
The People’s Bank of China (PBOC) faced criticism from analysts who questioned the effectiveness of its liquidity injection, as there was an exceptionally low demand for credit among consumers and businesses. The analysts also observed that there were no policies in place to support genuine economic activities in order to revive and maintain China’s protracted structural decline. Additionally, they noted that additional fiscal stimulus would be necessary to achieve the 5% growth trajectory for the year.
The PBOC also announced that it would lower interest rates, including its new benchmark seven-day reverse repo rate, which it intends to decrease by 0.2 percentage points to 1.5%. It also stated that the prime rates will decrease by 20-25 basis points, while the interest rates on the medium-term lending facility will decrease by 30 basis points. Senior analyst at Natixis Gary Ng said that these policy changes were probably a little too late, but they were still better than nothing.
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