China is planning to inject fresh capital into some of its largest banks in the coming months as part of a broader effort to strengthen the struggling economy. According to sources familiar with the matter, the government is preparing to provide at least 400 billion yuan ($55 billion) in new capital to a group of banks, including Agricultural Bank of China Ltd. and Bank of Communications Co.
The plan, expected to be completed by June 2025, is still being finalized, and the exact amount allocated to each bank may change. This move is part of a larger strategy that could see China inject up to 1 trillion yuan into its major banks, funded primarily through the issuance of special sovereign bonds, as previously reported by Bloomberg.
Why is China Injecting Capital into Banks?
China’s banking regulator had first hinted at this plan in September 2024, stating that it aimed to strengthen the core tier-1 capital of the country’s top six state-owned banks. However, specific details were not provided at the time. Later, the Ministry of Finance confirmed that the government would issue special sovereign bonds to finance these capital infusions. The goal is to enhance financial stability, reduce risks, and encourage lending to support economic growth.
Even though China’s largest banks currently have capital reserves that exceed regulatory requirements, the government is taking preemptive steps to reinforce the financial system. In recent years, banks have been under pressure due to low profit margins, declining earnings, and rising bad debt levels. The economic slowdown has also led to various stimulus measures, including reductions in mortgage rates and key policy interest rates, to boost demand.
First Capital Injection Since 2008
Traditionally, Chinese banks have relied on retained earnings to build their capital buffers. Some also took advantage of low interest rates by issuing bonds to raise funds. However, this planned capital injection would mark the first major government-led bank recapitalization since the 2008 global financial crisis.
The Ministry of Finance, the National Financial Regulatory Administration, Agricultural Bank of China, and Bank of Communications have not yet responded to media inquiries regarding the capital injection plan.
