We have started the week we some pretty major economic news from China and they have taken a leaf out of the playbook of the Western Imperialist Capitalists with this.
China rolled out a package of capital injections worth about 360 billion yuan (US$54 billion) on Sunday for the country’s largest state-owned insurers and state banks, marking a step towards Beijing’s long-flagged plan to build itself into a global financial powerhouse. (South China Morning Post)
Yes it is a case of “The Precious! The Precious!” The South China Morning Post is rather copying the official line here as bailouts are the opposite of being a financial powerhouse. Also if someone gave us 35 billion Yen we could absorb risk too.
China Life Insurance Company said it would receive 35 billion yuan to help strengthen its “ability to withstand risk”, according to its website.
Plus there seems to be quite a merry-go-round going on here.
Among banks, the Agricultural Bank of China planned to raise up to 160 billion yuan through a private placement of new A shares to the finance ministry, China National Tobacco Corporation and related subsidiaries, an exchange filing showed.
Industrial and Commercial Bank of China (ICBC) was targeting up to 100 billion yuan from the same group of investors, according to an exchange filing. (SCMP)
With Chinese exports doing so well the problems for its export banks pose a question.
The Export-Import Bank of China, a policy lender known as Eximbank, was set to receive 30 billion yuan to “significantly enhance its capacity to support the real economy and opening up, while reinforcing its resilience in risk prevention”, according to state news agency Xinhua.
China Export & Credit Insurance Corporation, known as Sinosure, announced a 10 billion yuan injection to replenish its core capital, aimed at improving its solvency adequacy ratio and expanding its capacity to meet insurance obligations.
I think we have been given a sideways look at how China is oiling the wheels for its exports or if you prefer a version of dumping them. In other news that trend continues.
Breaking News: Volkswagen said it is cutting about 50,000 jobs in the face of surging Chinese competition, energy prices and the costly transition to electric vehicles. (New York Times)
It is probably also a factor in the rumours today about 4000 job losses at Jaguar Land Rover in the UK.
Economic Growth
We have just looked at a feature of that which is the export performance ( via its impact on others). But the explanation we are given again could have come from the Western Capitalist Imperialists.
The capital injections build on Beijing’s ambition to transform China into a financial powerhouse, a goal the central bank formally embedded in its first-ever stand-alone five-year plan this year, which pledges to expand the yuan’s global use and build a “strong central bank” to drive that vision. (SCMP0
The Yuan will have been made stronger by the export success as that will create demand for it. But you do not create a strong central bank and a financial powerhouse with bailouts. Otherwise the strongest central banks in the world would have been the Bank of Greece and the Bank of Italy. Actually on reflection for a spell they would have both have been gazumped by the Central Bank of Ireland.
S&P Global Ratings has estimated China’s big four state-owned banks – ICBC, China Construction Bank, Agricultural Bank of China and Bank of China – faced a capital shortfall of as much as 3.7 trillion yuan by 2025 to meet total loss-absorbing capacity (TLAC) requirements.
TLAC refers to a capital buffer international regulators require of the world’s biggest banks so they can absorb losses in a crisis without needing a government bailout. (SCMP)
We seem to be rather skipping how they are short of backing and funds as after all we are told they are doing rather well.
China’s six largest state-owned banks posted their first simultaneous increase in both first-half revenue and net profit since 2022 this year, driven by a tentative recovery in net interest margins – the gap between what banks earn on loans and pay out on deposits.
That margin had steadily narrowed over the previous two years, dragging the industry average down to a record low of nearly 1.4 per cent in the first quarter of 2026. (SCMP)
Now there is a clear contradiction there between a record low margin and higher claimed profits. I realise that the second quarter is after the record low margins but let me switch to the next issue.
Bond Yields
The situation here is really rather different to the rest of the world with the only other exception I can think of being Switzerland (for different reasons). What I mean by this is that China has seen its bond yields and thus many interest-rates falling. We know from the ZIRP and indeed NIRP period that this is bad for banks. You do not need to take my word for this just look back to all the official denials, or if we look at Switzerland again how it ended up down to only one major bank.
FNZ: the Credit Suisse spinout haemorrhaging cash (FT)
China is far from at those levels but its bond yields have been falling. Its ten-year yield peaked at 1.9% just under a year ago and is 1.68% today. Now there was a blip up at the end of the second quarter and they may have reported their bond profits. But there are things which are one-offs.
Iron Ore
Sometimes the money pops up in expected places.
It’s interesting (although not at all surprising) that the recapitalization of Chinese banks is interpreted by iron ore traders as something that will boost the price of iron ore. It shows that they understand the link that ties debt creation to political growth targets. (Michael Pettis)
Comment
In this sort of situation there is a lot going on at once so let me remind readers of my long-running theme as we step back in time to 2023.
(Yicai) Nov. 29 — At least 16 Chinese metropolises are rolling out more measures, such as cutting taxes and offering subsidies, to help people sell their second-hand properties in order to buy a new one and bolster the sluggish newly built housing market.
There was another clue on that day.
The new policies have made the sale of second-hand houses smoother in some places, but it is still difficult to sell a pre-owned home as there are so many up for sale that closing a deal takes a very long time, some real estate agents told Yicai.
Insurers and banks will have large property losses which we know will be fed out to us in penny packets over time. Today is a part of that. Along the way we have a version of Goodhart’s Law as money is diverted to try to maintain the growth targets.
But there is an undercut too because looking back to 9th of November 2023 I saw this.
It was supposed to be replaced by even more manufacturing but will other countries let China wipe out whole swathes of their manufacturing sector? Actually initially they have a chance via the obsession with renewable energy making some manufacturing now longer viable in Europe
It turns out that the Western political class are even more incompetent than I thought and China has quite a triumph in terms of manufacturing exports.