Did China's biggest banks just get a bailout from Beijing?

Over half-a-trillion yuan in capital injections hoped to fortify China's stock market.

China's biggest banks have tapped the Ministry of Finance and large-scale state-owned enterprises for capital injections worth over half-a-trillion yuan.

The move arrives as the profitability of China's banking sector come under pressure, amidst Beijing's push to reduce financing costs for the real economy.

Domestic experts say the goal of the latest capital injection is to bolster the health of the banks, so they can step up financial support for an economy still grappling with Trump's tariff uncertainty and weak domestic demand.

A related goal is intervention in the Chinese stock market to shore up its stability, so that it can play a bigger role in the financial system moving forward.

Four of the big banks tap Beijing for funds

Four of China's big six state-owned banks just obtained approval for new A-share issues from the Chinese securities regulator.

These banks include Bank of China (BOC), Bank of Communications (BOCOM), China Construction Bank (CCB) and Postal Savings Bank of China (PSBC).

The four banks plan to raise funds totalling 520 billion yuan via share issues to "designated investors."

BOC plans to raise up to 165 billion yuan, CCB up to 105 billion yuan, BOCOM 120 billion yuan and PSBC 130 billion yuan.

Designated investors for the A-share issue include China's Ministry of Finance - which is positioned to issue 500 billion yuan in special treasury bonds to raise funds for the capital injections.

Other key investors include some of the largest state-owned enterprises under Beijing's remit.

These include China Tobacco, telecommunications giant China Mobile and China State Shipbuilding Corporation.

The news has caused a massive stir in China's financial circles and domestic press.

Questions abound as to the goal of the fund-raising, whether it's a sign of mounting financial risk, as well as the impact of the new A-share issues on smaller investors.

Why the big state-owned banks are raising funds

Chinese economics commentator Mo Kaiwei (莫开伟) writes that the big state-owned banks need the capital injections to deal with waning levels of profitability ("莫开伟：国有大行向特定对象发行A股意在提高市场抗风险能力").

Beijing also wants the banking sector to step up its provision of low-cost financial support to the Chinese economy, which continues to grapple with Trump's policy uncertainty and lacklustre domestic demand.

These concerns have prompted China's top policymakers to work on measures to improve the capital adequacy ratios of the banks for the past nine months.

Since September last year, the Ministry of Finance and the National Financial Regulatory Administration (NFRA) have both repeatedly highlighted the need to issue special bonds to supplement the core tier-1 capital of the big six state-owned banks.

The Two Sessions congressional event in March also outlined plans to issue 500 billion yuan in special treasuries to beef up the capital of these stalwart lending giants.

At the time, state-owned media pointed to the need to deal with the waning profitability of China's banking sector as a whole, as a result of their contracting net interest margins.

China's banks post worsening performance metrics

Official data indicates that concerns over the performance of China's banks are warranted, despite the core tier-1 capital ratios of all six of the big state-owned lender still hovering above minimum regulatory levels.

As of the end of March 2025, the core tier-1 capital ratios of the banking sector as a whole stood at 10.7%, for a slight decline compared to the end of last year.

PSBC's tier-1 core capital ratio fell to 9.21% as of the end of the first quarter, approaching the minimum regulatory threshold of 9%.

The provisions coverage ratio of China's commercial banks stood at 208.13%, for an on-quarter decline of 3.06%.

The non-performing loan ratio of China's banks stood at 1.51% at the end of the first quarter, for a rise of one basis point compared to the start of the year.

The net interest spread - a key measure of bank profitability - was 1.43%, for a year-on-year decline of 12 basis points, as well as nine basis points compared to the end of last year.

Mo Kaiwei says this downturn in profitability and performance metrics is the result of Beijing's long-term push to reduce borrowing costs, with the goal of better supporting the Chinese economy.

"It's apparent that it's becoming increasingly difficult for the big state-owned banks to use their own retained profits to increase their capital," Mo writes.

"As banks have increasingly reduced fees and ceded interest earnings, their net profit margins have narrowed, and profit growth has eased.

"It's become a matter of urgent importance to raise funds to supplement capital.

"The key thing is raising the ability of the big state-owned banks to provide capital support to the real economy, increasing their ability to generate operating profits and their ability to withstand market risk"

Mo sees the 520 billion yuan in funds raised lifting PSBC's capital adequacy ratio from 9.21% to 11.07%, while at BOC and BOCOM it will rise to 13.06% and 11.52%.

This will help drive six trillion yuan in lending to priority areas of the economy for Beijing, including science and tech innovation, the green economy, as well as micro-and-small businesses.

Capital market effects

Given the importance of the big state-owned banks as blue chip stocks, the A-share investments also have major implications for the health of China's capital market.

The matter is of acute importance at present, given Beijing's efforts to push capital markets to play a much greater role in a financial system long-dominated by the big state-owned banks.

Xi's policymakers hope that the equity and bond markets can do a more efficient job of allocating financial resources, in order to drive China's technological ascent as well as wean it off US dependence.

Because the state-owned banks are considered the most reliable of blue chip stocks, any signs of trouble for them could have dire significance for the stock market.

Thus far, Beijing has shown itself highly willing to use state-owned investors - such as sovereign fund Central Huijin, to intervene in the stock market in order to stymie price volatility and shore up the confidence of smaller investors.

Mo Kaiwei says the capital injections for the four big state-owned banks can also be considered a form of intervention in the stock market for the purpose of ensuring stability.

He notes that aside from the Ministry of Finance, the designated investors consist of large-scale state-owned enterprises with strong economic resources.

Their A-share investments in state-owned banks are locked in for a period of five years, which Mo says helps to provide stable long-term funds and increases their appeal to strategic investors.

It will also help to avoid liquidity shocks on the secondary market, particularly given the support provided by the issuance of Special Treasuries by the Ministry of Finance.

Mo says the plan "embodies the intentions of the state to use capital supplementation to preserve financial stability."

"I believe that it will play a positive role in guiding expectations for bank stocks as well as China's entire capital market," Mo writes.

"This will form a mechanism of 'targeted policy support plus market-based quantitative increase in financing,' which can effectively maintain market stability.

"It will further strengthen the confidence of general investors in bank stocks and China's capital market, as well as the stabilisation and recovery of the entire Chinese economy."