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China Investment injects US$20bn into policy bank

China Investment Corp (中國投資), China's US$200 billion wealth fund, will inject US$20 billion into China Development Bank (國家開發銀行) as the government nears the end of a decade-long restructuring of the banking industry.

China Investment signed an agreement yesterday in Beijing with the so-called policy bank, which funds the nation's public works projects, the central bank said on its Web site.

The money "will increase the bank's capital adequacy ratio significantly," the statement said.

The capital injection will help the government's plan for reorganizing China Development. China Investment, Asia's biggest state-owned investment company, was created in September after surging trade surpluses helped push the nation's currency reserves to a record US$1.46 trillion.

China Investment, modeled on Singapore's Temasek Holdings Pte, aims to diversify the world's largest foreign currency holdings. In May, it invested US$3 billion for a 9.4 percent stake in New York-based Blackstone Group LP, manager of the world's biggest buyout fund.

China Investment this month invested more than US$5 billion in Morgan Stanley after the second-biggest US securities firm wrote down US$9.4 billion in mortgage-related debt.

Yesterday's announcement may mean that the Agricultural Bank of China (中國農業銀行) could receive US$47 billion from China Investment. Li Yong (李勇), China's vice finance minister, said last month that the two banks would receive a combined US$67 billion.

Agricultural Bank, saddled with US$100 billion in bad loans, will be the last of the country's four biggest state-owned lenders to be bailed out by the government, paving the way for the company to sell shares for the first time. It may receive regulatory approval for its restructuring plan "soon," central bank Governor Zhou Xiaochuan (周小川) said last week.

China spent about US$500 billion recapitalizing its largest banks in the past decade. The government is reorganizing state-owned lenders and policy banks and pushing them to sell shares to the public so that international accounting, disclosure and capital adequacy rules can improve their competitiveness.
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