China to Set Up Fund to Rescue Troubled Financial Firms

China will set up a fund to provide support to troubled financial firms as risks to the economy grow.

The stability fund will be set up with capital from financial institutions and get liquidity support from China’s central bank, according to a draft law of financial stability the People’s Bank of China published on Wednesday. It didn’t specify the size of the fund.

Bloomberg News reported last week China’s central bank is leading an effort to raise several hundred billion yuan for a new fund to defuse financial risks.

China is moving to stem financial risks ranging from hundreds of weak rural banks to dozens of distressed developers saddled with at least $1 trillion of liabilities. Challenges are mounting as the debt crisis ripples through the property market and as a resurgence in Covid infections forces a partial shutdown in Shanghai, threatening to sap momentum in the world’s second-largest economy.

While the key mandate of the new fund is to rescue financial institutions, it could indirectly help too-big-to-fail entities in other sectors including real estate by providing financing through banks, Bloomberg reported in March, citing people familiar with the deliberation, asking not to be identified discussing a private matter. This would be the first fund dedicated to ensure broad financial stability, unlike previous funds that were more targeted.

Source: Bloomberg

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