SHANGHAI (AFP) - China has injected nearly US$100 billion (S$140.27 billion) from its foreign exchange reserves into two policy banks, which lend based on government directives, to help spur the country's sluggish economy, state media reported on Wednesday (Aug 19).
Shanghai stocks closed up 1.23 per cent on Wednesday, erasing a more than five per cent plunge in morning trade, on expectations of fresh government support for the market, dealers said. The benchmark Shanghai Composite Index fell as much as 5.06 per cent and rose up to 1.69 per cent during the day after a more than six per cent drop on Tuesday, the biggest fall in three weeks. The Shenzhen Composite Index, which tracks stocks on China's second exchange, rose 2.19 per cent.
The central bank on Tuesday completed putting US$48 billion into the China Development Bank and US$45 billion into the Export-Import Bank of China, the official Xinhua news agency reported.
The move was to enhance their capital base and support the economy, it said.
"The injection suggests the central bank is trying to guide funds to go to the real economy, like exports and infrastructure construction," China economist at Barclays Capital, Wang Shengzu, told AFP.
Separately, Bloomberg News reported China Development Bank and another policy bank, the Agricultural Development Bank of China, plan to issue 1.0 trillion yuan (S$230 billion) worth of bonds to fund construction projects to boost the economy.
China's economy, the world's second-largest, expanded 7.4 per cent last year, its weakest since 1990, and has slowed further this year, growing 7.0 per cent in each of the first two quarters.
The government has set a target of around 7.0 per cent growth for all of 2015.
In a bid to stimulate activity, China has cut interest rates four times since November and has also lowered the reserve requirement ratio - the amount of money banks must put aside.
"The funds released from earlier monetary loosening didn't go to the real economy. Instead, most of it went to the financial institutions and the stock market," Wang added.
The benchmark Shanghai stock index rose 150 per cent in 12 months to mid-June in a borrowing-fuelled surge, before plummeting almost a third in three weeks.
The Wutongshu Investment Platform Co., which invests China's foreign exchange reserves, carried out the bank fund injections and will become a shareholder in both financial institutions, Xinhua said.
China's foreign exchange holdings are the world's largest, though they fell to US$3.69 trillion at the end of June, down from US$3.73 trillion at the end of March.