China pulls in Big Tobacco to help with smaller-than-expected finance-industry capital injections
With a bigger capital cushion, financial institutions may also be asked to do more to mobilize resources in capital markets, analysts say.
China's planned US$54 billion capital injection into eight state-owned financial institutions may provide some relief, but it is not enough to fully alleviate the financial strains, according to analysts. The move, which extends a recapitalisation drive since 2025, now encompasses insurers and other financial institutions, with the aim of strengthening capital buffers across the financial system.
However, low interest rates are hindering insurers' investment returns and narrowing banks' net interest margins, making it difficult for them to maintain sufficient capital buffers. While the capital injection is a step in the right direction, analysts argue that further fiscal support is needed to revive credit demand and ensure the fresh capital is used effectively.
Insurers are facing greater pressure to match assets with liabilities due to lower returns, and expansion in equities and other risk assets will continue to raise their capital needs. Faster fiscal spending would be necessary to generate demand for credit, with monetary and credit policy providing support. Despite the capital injection, banks' loan growth in July declined by 340 billion yuan, the largest on record, indicating that the capital injection alone is not sufficient to boost lending.
Written by urgent.news from SCMP Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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