A huge financial institution with a recent history of misbegotten investment decisions gets a huge capital infusion from the government.
Is this a sign of the success of the financial institution or its failure?
In the West, we’d generally assume that this situation was describing a Too Big To Fail bank.
But in China, apparently, the $200 billion capital injection in the China Investment Corp is “an acknowledgment from Beijing that CIC has performed well during a time of global turmoil.”
That’s not a line from some Chinese government spokesperson. It is from the Financial Times.
We’ve pointed out before that China really does seem to be the land through the looking glass. Folks who are sceptical about the efficacy of government spending seem to lose that scepticism altogether when it comes to China. It’s as if the rent-seeking, knowledge and calculations problems, and the outright fraud just vanish on the far side of the China Sea.
Of course, there are indications that this move actually indicates financial distress in China rather than strength. After all, one of the drivers for the new infusion is to allow the CIC to pass the money on to China’s largest banks. But this too is being spun as a sign of strength.
Another factor influencing the decision to give CIC more money is the fact that China’s largest banks are expected to raise roughly $50bn in new capital over the next couple of years to meet tighter regulatory requirements.
Since CIC holds controlling stakes in most of China’s largest banks, the fund must provide much of this capital to avoid seeing its holdings diluted.
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