Will China’s $142 Billion Bailout Revive Its Struggling Economy?

China is considering a significant capital boost of about $142.4 billion (1 trillion yuan) to support its largest state bank, aiming to revitalize a faltering economy and stagnant markets.

This initiative may involve issuing new sovereign bonds, representing the largest government bailout effort since the 2008 financial crisis.

This potential move comes as part of broader stimulus strategies following reports that four of China’s five leading banks posted losses in the second quarter.

In response to government pressure, these banks have lowered interest rates to stimulate declining loan demand. Analysts are calling for more aggressive fiscal measures to counter deflationary risks that threaten China’s growth targets.

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China Unveils Biggest Stimulus Since Pandemic – Will It Be Enough to Revive Growth?

The People’s Bank of China (PBOC) announced an economic stimulus package on September 24, hoping to lift the economy from deflationary pressures.

Critics have raised concerns about the effectiveness of the PBOC’s liquidity injections, citing persistently low credit demand and a lack of supportive policies for genuine economic activity.

Despite these challenges, markets reacted positively, with China’s CSI 300 index up 0.35% and Hong Kong’s HSI index gaining 1.5% as of September 26.

However, lowering interest rates has had adverse effects, as major banks like ICBC and CCB reported reduced second-quarter profits. ICBC’s net interest margin fell to 1.43%, while Agricultural Bank of China reported a 14.2% profit increase, contrasting with the overall trend.

Alexander Stefanov