Beijing moves to strengthen banks and insurers with $54bn

China will inject $54bn (£40bn) into its financial sector as Beijing seeks to strengthen banks and insurers amid faltering economic growth. State institutions, including the finance ministry and China National Tobacco Corp, are due to provide capital to financial institutions.

The support is intended to increase the sector’s ability to invest in the stock market and lend to businesses as weak loan demand and sluggish growth weigh on the world’s second-largest economy.

Insurers are being given more capital

China Life Insurance, the country’s largest life insurer, said it would receive 35bn yuan in capital. China Taiping Insurance Group said it would receive 7bn yuan.

The People’s Insurance Company of China plans to raise up to 15bn yuan through a private placement of A-shares to the finance ministry, using the proceeds to replenish its capital. The measure comes as low interest rates have eroded profitability and some small and mid-sized insurers have reported worsening solvency ratios. For additional context, see “Wildberries faces government support as Ukrainian attacks disrupt Russian retail sector”.

State insurers have been directed by Beijing to support the stock market with medium- and long-term funds. Stronger balance sheets could also help them assist regulators in managing smaller, higher-risk insurance companies.

State banks will replenish their reserves

The Agricultural Bank of China and Industrial and Commercial Bank of China said they planned private A-share placements to the finance ministry, China National Tobacco Corp and its subsidiaries. The Agricultural Bank plans to raise up to 160bn yuan, while the Industrial and Commercial Bank plans to raise up to 100bn yuan.

The banks said the proceeds would be used entirely to replenish cash reserves. That would help them sustain credit expansion as Beijing relies on state lenders to support growth despite weak demand for loans. A related part of this story is covered in “China Criticizes UK Over Nationalisation of British Steel Amid Investment Concerns”.

The capital-raising tool extends financing measures that helped bolster some other large state banks last year. China Life said its injection would strengthen its ability to withstand risk and improve its capacity to serve the real economy.