360 billion yuan to consolidate the Chinese financial system

360 billion yuan to consolidate the Chinese financial system. Beijing will inject the equivalent of around $54 billion into three state-controlled banks and five insurers. Led by the Chinese Ministry of Finance, the operation aims to strengthen their equity, their capacity to absorb losses and, ultimately, their ability to finance the real economy. Of the 360 ​​billion yuan announced, 290 billion will go to banks and 70 billion to insurers. A massive recapitalization whose effects on liquidity and risky assets, including Bitcoin, will nevertheless remain indirect.

Beijing recapitalizes three banks and five public insurers

Agricultural Bank of China is to raise up to 160 billion yuan through a share issue reserved for the Ministry of Finance, China National Tobacco Corporation and some of its subsidiaries. ICBC, the world's largest bank by the size of its balance sheet, plans a similar operation of up to 100 billion yuan.

The Export-Import Bank of China will receive 30 billion yuan. This specialized public bank finances in particular Chinese exporters and projects considered strategic by Beijing.

The five insurers concerned will share 70 billion yuan: China Life will receive 35 billion, PICC up to 15 billion, Sinosure 10 billion, China Taiping 7 billion and China Reinsurance 3 billion.

China's Ministry of Finance will finance 300 billion yuan through special sovereign bonds. The supplement will come in particular from other public investors.

This operation extends a first wave of recapitalization of 500 billion yuan intended for four other large state banks. It comes at a time when Chinese establishments are suffering from weak demand for credit, persistent difficulties in real estate and the erosion of their margins caused by the fall in rates.

What effect on Chinese credit and Bitcoin?

The injection does not correspond to a direct distribution of money to households or businesses. It first strengthens the regulatory capital of the establishments concerned, that is to say their capacity to absorb possible losses while respecting the ratios imposed on banks and insurers.

It can nevertheless create a powerful leverage effect. Using a theoretical ratio of eight units of assets for one unit of equity, the 290 billion yuan allocated to banks could support up to around 2.3 trillion yuan of additional assets. This figure represents maximum capacity, not a forecast of new loans: demand must still exist and banks agree to lend.

For Bitcoin, the link therefore remains indirect. An acceleration in Chinese credit could boost global liquidity and favor risky assets. But none of the funds announced are intended for the crypto market, trading of which remains prohibited in mainland China.