BEIJING: China is moving to put a stronger fiscal backstop under its State-owned financial system, with the Ministry of Finance planning to issue 300 billion yuan ($44.7 billion) in special treasury bonds to replenish the Common Equity Tier 1 capital of eight major financial institutions.
The move, which comes despite the institutions’ current sound capital and asset-quality indicators, signals a pre-emptive effort to strengthen banks’ capacity to absorb risks and sustain lending to the real economy, while underscoring Beijing’s growing use of fiscal policy to reinforce financial stability and support its broader ambition of building China into a financial powerhouse.
According to capital increase announcements released in September by the eight financial institutions, including the Industrial and Commercial Bank of China, Agricultural Bank of China, the Export-Import Bank of China, and China Export & Credit Insurance Corporation, the total planned capital increase amounts to 360 billion yuan, of which the Ministry of Finance intends to subscribe for up to 300 billion yuan in total.
The ministry said the capital injections would strengthen the institutions’ ability to operate prudently, withstand risks and serve the real economy, while supporting their long-term, high-quality development. For the listed financial institutions among them, stronger capital positions could also help create greater value for shareholders and generate more stable long-term returns.
The eight financial institutions are currently operating on a sound footing, with stable asset quality and major regulatory indicators within safe and healthy ranges, according to the ministry.
Experts said the capital injections do not reflect a funding shortfall at the institutions, but rather represent a pre-emptive effort to reinforce the capital base of China’s State-owned financial system. The move reflects closer coordination between fiscal and financial policies.
ICBC illustrates why additional capital is becoming increasingly important for China’s major banks.
At the end of June, ICBC’s CET1 capital adequacy ratio stood at 13.21 percent, comfortably meeting regulatory requirements. Its nonperforming loans ratio was 1.29 percent, down 0.02 of a percentage point from the end of last year, while its allowance to nonperforming loans rose 3.98 percentage points to 217.58 percent.
But deeper interest-rate liberalization and narrowing net interest margins have slowed the bank’s ability to build capital through retained earnings. Meanwhile, after ICBC moved from Bucket 2 to Bucket 3 in the Financial Stability Board’s 2025 list of global systemically important banks, it faces a higher additional capital buffer requirement.
On Sept 6, ICBC announced that it planned to raise up to 100 billion yuan through a private A-share placement to the Ministry of Finance, China National Tobacco Corporation and related subsidiaries to replenish its CET1 capital.
The move would strengthen ICBC’s capital buffer, optimize its capital structure and provide a stronger foundation for managing potential risks and sustaining long-term growth.
Banks’ lending capacity is constrained by capital adequacy requirements. Increasing CET1 capital allows banks to expand credit within regulatory limits, providing additional financing to businesses and households. The same principle applies to insurers. A stronger capital base enables insurers to improve solvency and expand underwriting capacity.
Dong Ximiao, chief economist at Merchants Union Consumer Finance and executive director of the Shanghai Institution for Finance and Development, said banks’ ability to generate capital internally needs to improve as interest rates continue to fall and net interest margins come under pressure. At the same time, insurers are facing greater capital requirements as they expand services related to retirement, healthcare and green investment — areas that are priorities under China’s national development strategies. –The Daily Mail-China Daily news exchange item
