China’s Central Bank, the People’s Bank of China (PBOC), will reportedly inject $62 billion of its foreign exchange reserves into two state-owned policy banks in order to support its New Silk Road project, which is aimed at creating infrastructure in order to boost connectivity between Asia, Europe, the Middle East, and Africa.
The PBOC will inject $32 billion to China Development Bank (CDB) and $30 billion to Export-Import Bank of China (EXIM), according to Beijing-based Caixin financial news magazine.
The capital injection will be carried out through converting entrusted loans into stakes, Caixin said, adding that the PBOC will become the second largest shareholder in the China Development Bank and the biggest shareholder of the EXIM bank.
The capital injections will provide long-term foreign currency for the banks to support Beijing’s “One belt, One road” initiative, also known as the New Silk Road, which includes plans to construct roads, ports, railway systems, and other infrastructure from China into the Middle East, Europe, Africa, and Central, South and Southeast Asia to create demand for China’s industrial exports, as it already sees oversupply at home.
Chinese government said last week that it had approved reform plans for CDB, Exim Bank, and Agricultural Development Bank that were proposed by the PBOC in an effort to advance finance projects amid the current economic slowdown.
The foreign exchange reserves of China, the largest in the world, fell by $110 billion to $3.7 trillion in the first quarter of 2015, amid signs of capital outflows.
On Sunday, the PBOC cut the amount of cash that banks must hold as reserves by the most since the global financial crisis.
The PBOC lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, which will free up around $200 billion for banks to lend, according to the Wall Street Journal.
Last week, the Chinese government announced that economic growth in the first quarter (Q1) of 2015 rose 7 percent from a year earlier, which was the slowest quarterly expansion since early in 2009.
China has set its economic growth forecast for 2015 at “about 7 percent” as it struggles with a property downturn, factory overcapacity, and local debt. A growth rate of 7 percent would be China’s slowest annual rate of expansion in 25 years.