Chinese SWF Boosts Domestic Banks As Economy Slows

China's four major state-owned banks revealed the amount of their A-shares that Central Huijin Investment has bought in an effort to shore up confidence in the financial market.

(June 18, 2013) — Central Huijin Investment, a unit which holds Beijing’s investments in state-owned financial firms, has spent approximately 363 million yuan ($59.2 million) buying domestic bank shares.

The unit bought 19.3 million yuan-denominated so-called A-shares in Industrial & Commercial Bank of China (ICBC), 24.5 million in China Construction Bank Corp, 18.5 million in Bank of China, and 42.9 million in Agricultural Bank of China on June 13.

And the spending spree is set to continue, with Central Huijin pledging further share purchases over the next six months

The move by Beijing is designed to bring a degree of reassurance to the Chinese markets, which slumped to six-month lows after data showed the economy was cooling faster than expected.

It’s not the first time Huijin’s intervened to boost confidence in the markets-it’s widely understood that despite China’s promise to allow free markets to play a bigger role in its economy, Beijing regularly intervenes in the equity market during sell-offs by ordering Central Huijin or other state pension funds and insurers to invest millions of yuan in shares.

Central Huijin also raised its holdings in New China Life Insurance Co and China Everbright Bank Co last week, according to a report on Bloomberg. It last increased the stakes in the biggest banks, including ICBC and Bank of China, in April.

The China Investment Corporation (CIC) sovereign wealth fund holds the shares of Central Huijin in accordance with the relevant directives issued by China’s State Council.

However, the investment business of CIC and the share management function conducted on behalf of the State Council by Central Huijin are completely separated.

In a recent investor note, the Bank of America Merrill Lynch named China as the most resilient major emerging market economy, driven in part by its large banking sector.

However, it appears the gesture by Central Huijin may have little effect. China’s shares ended flat Tuesday, according to a report in the Wall Street Journal, with early gains tempered by lingering concerns over the sluggish domestic economic growth.

The benchmark Shanghai Composite Index, which tracks both A and B shares, ended up 3.07 points at 2,159.29. The Shenzhen Composite Index rose 0.2%, or 1.77 points to 979.43.

Analysts believe the Shanghai Index is likely to trade between 2,100 and 2,200 for the rest of the week, due to concerns over the slowing economic activity. Investors are also eyeing comments from US Federal Reserve Chairman Ben Bernanke regarding the US central bank’s plans for its stimulus programme, as the Fed officials meet later today.

“While news that Central Huijin increased its stakes in the big four banks helped boost sentiment early in the morning, the rebound in the market must go hand-in-hand with economic fundamentals to be sustainable,” Zhang Yanbin, an analyst from Zheshang Securities, told the WSJ.