State-owned Chinese insurance companies and banks announced that the Chinese Ministry of Finance will lead the process of injecting large capital into a number of financial institutions, as part of a broad move by Beijing to strengthen the strength of the financial system and support its ability to confront economic pressures.
Data issued by the relevant institutions indicated that China Life, the largest life insurance company in China, will receive 35 billion yuan, equivalent to about 5.2 billion dollars, while China Taiping Insurance Group will receive 7 billion yuan.
China People’s Insurance Company also announced its plan to raise up to 15 billion yuan through a private offering of Class A shares for the benefit of the Ministry of Finance, with the proceeds of the transaction being used to enhance the company’s capital.
This move comes at a time when Beijing relies on state insurance companies to support the stock market through medium- and long-term investments, in addition to helping regulators deal with smaller and more risk-prone insurance companies.
Support the insurance sector
The Chinese insurance sector is facing increasing pressure on profitability as a result of continued low interest rates, while many small and medium-sized insurance companies have recorded a decline in solvency indicators.
In the same context, China Export and Credit Insurance Company said that the Ministry of Finance will inject 10 billion yuan to enhance its core capital, while China Re intends to raise 3 billion yuan.
China Life stressed that the capital injection represents an important step to enhance the financial sector’s ability to serve the real economy and support development, noting that the process will contribute to raising the group’s ability to confront risks.
For its part, China Taiping said that the new funds will support solvency levels and other key performance indicators.
290 billion yuan to state banks
In conjunction with this, three Chinese government banks announced, on Sunday, plans to obtain a total capital injection of 290 billion yuan, as part of efforts to recapitalize government banking institutions.
The plan was revealed for the first time during the annual parliamentary meeting last March, with the aim of expanding a financing instrument previously used to support a number of the largest government banks in the previous year.
The Agricultural Bank of China and the Industrial and Commercial Bank of China, two of the country’s largest government lenders, announced their intention to raise up to 160 billion yuan and 100 billion yuan, respectively, through a private offering of Class A shares for the benefit of the Ministry of Finance, the China National Tobacco Company and its subsidiaries.
The two banks explained that the funds that will be raised will be fully allocated to strengthening the basic capital of the first level, in a way that supports their ability to expand lending, at a time when Beijing is betting on government banks to contribute to supporting economic growth.
The Chinese government’s move comes in light of the continued weakness in demand for loans, which represents one of the pressures facing the second largest economy in the world, and has also contributed to the decline in the profitability of the banking sector.
In an additional step, the Export-Import Bank of China, one of the country’s main policy banks, announced that the Ministry of Finance will inject 30 billion yuan to strengthen its capital base.
These moves reflect Beijing’s move to strengthen the capital base of government financial institutions, giving them greater ability to bear risks, maintain the flow of credit, and support the economy in the face of current pressures.
