Chinese banks get a lifeline from sovereign wealth fund

China’s $400 billion sovereign wealth fund rode to the rescue of the company’s beleaguered banking sector.

Central Huijin Investment announced Monday that it had acquired shares of the country’s four largest banks, and would keep buying in the open market. The purchases will increase the fund’s control over the banks only marginally.

“Huijin has a history of attempting to prop up Chinese bank shares at the government’s request,” according to The Wall Street Journal.

Industrial & Commercial Bank of China (1398, quote), Agricultural Bank of China (1288, quote), Bank of China (3988, quote) and China Construction Bank (quote). Bank of China have all come under pressure amidst growing investor concerns that the Chinese economy may be overheating. As Bloomberg News noted, the MSCI China Financials Index has plunged 36%  this year and is headed for its worst performance in three years.

People’s Bank of China, China’s equivalent to the Federal Reserve, has raised interest rates five times and increased bank reserve requirements nine times.

The impact of these moves has been minimal. China’s gross domestic product expanded by 9.5% in the second quarter, a slowdown from 9.7% in the early part of the year. Further tightening is unlikely since officials believe it will hurt growth,

For now, investors may want to avoid Chinese banks for the foreseeable future.

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