The People’s Bank of China injected a combined $31 billion into two policy banks linked to the New Silk Road project, said inside sources.
The central bank converted $16 billion worth of foreign exchange loans to China Development Bank (CDB) into equity shares in the bank, according to sources with knowledge of the matter, reported Chinese news site Caixin. It did the same with $15 billion worth of forex loans to Export-Import Bank of China (Exim). This follows a similar trade in April, when the PBOC invested $32 billion in CDB and $30 billion in China Exim.
The central bank is now the biggest shareholder in China Exim and the third-largest shareholder in CDB, after the Ministry of Finance and Central Huijin Investment.
Both banks have been given the job of supporting the central government’s New Silk Road Economic Belt initiative. This project will build infrastructure to help increase China’s trade into two main directions, through Central Asia into Europe and through Southeast Asia to Africa.
While the number of shares wasn’t released, sources told Caixin that the central bank didn’t plan to keep them for long because of fears that supporting policy banks would cloud central bankers’ judgment on monetary policy.
Increasing policy banks’ capital so they can lend more is good for growth, but less so for the central bank when it comes to making monetary policy, one of the sources told Caixin. “In the long run, the central bank must be independent and fair.”