China on Monday announced a $20 billion capital injection into China Development Bank, one of the country's three policy lenders, as part of a long-planned transformation of the state-owned company into a commercial bank.
The move is likely to result in a multi-billion dollar stock market listing of the bank, aimed at raising cash, sharpen its competitive edge, and aid its overseas expansion following its 2.2 billion euro ($3.2 billion) investment in British lender Barclays in July.
"The capital injection extends the reform pattern of other state banks. It also means that restructuring of CDB will speed up toward commercial operations," said Yin Jianfeng of Finance Research Institute at the Chinese Academy of Social Science. Government investment vehicle Central Huijin, owned by the country's sovereign wealth fund China Investment Corp (CIC), signed the agreement with CDB on Monday.
"The capital injection will boost CDB's capital base significantly, improve its capability against risks and contributes to the bank's commercial operations," China's central bank said on its Web site www.pbc.gov.cn.
Morgan Stanley economist Wang Qing said CDB, which has raised funds mostly through bond issues, may turn into an investment bank, but with scant detail on specific restructuring plans the eventual outcome was difficult to predict. "There's still room for another large state-owned bank. There's still room to encourage more competition among banks."
CDB, a lender for Chinese policy initiatives, appeared to be on that track after it bought a 3.1 percent stake in Barclays, allowing the British lender to raise its price in a take-over battle for Dutch bank ABN Amro.
CDB had agreed it could potentially invest up to a further 7.6 billion euros for a 7.7 percent stake should Barclays have won the bidding battle for ABN Amro. China's remaining two policy lenders - Export-Import Bank of China and Agricultural Development Bank of China - would be the next targets for restructuring, analysts have said.
Beijing injected a total of $60 billion into three of the nation's banking giants - Bank of China, Industrial and Commercial Bank of China and China Construction Bank - before their overseas listings over the past few years.
China is keen for its big banks to float on the stock market to give them access to capital, raise their profile abroad, and to subject them to market discipline. But it acknowledges the banks' balance sheets often have to be cleaned up before shares can be sold to investors. CIC has said it would also provide capital to state-owned Agricultural Bank of China, the only of China's big state-run commercial banks yet to be restructured, starting with an injection ahead of a public listing.
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