China Policy Bank Provides $100 Billion in Liquidity Since May

Agricultural Development Bank of China has provided 615.7 billion yuan ($100 billion) in liquidity to the markets since late May, signaling efforts from the nation’s largest lenders to ease a cash crunch.

The funds were distributed mainly through overnight money market transactions and used to help institutions overcome liquidity shortages, the bank said in a statement on its website yesterday. The capital was provided to members of its bond underwriting syndicate, the lender said. Syndicate members include Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., according to the Chinese government bond clearing house website.

China’s central bank on June 25 called on big banks to further their roles as market stabilizers, as signs of the nation’s biggest squeeze on credit in at least a decade had pushed interbank borrowing costs to a record last week. The People’s Bank of China said in a statement on June 25 it would take steps to safeguard stability in money markets, and that tight liquidity was set to ease.

Interbank lending rates spiked last week as the monetary authority refrained from using open-market operations to address a cash crunch in the world’s second-largest economy. The seven-day repurchase rate touched a record 12.45 percent on June 20. It fell to 6.74 percent yesterday, compared with this year’s average of 3.85 percent, data compiled by Bloomberg showed.

Premier Li Keqiang’s government is seeking to curb speculative lending after credit expansion outpaced economic growth. Li signaled his determination to stamp out speculation funded by cheap money with a June 19 State Council statement saying banks must make better use of existing credit and step up efforts to contain financial risks.

China’s stocks have plunged on concern a cash squeeze is hurting economic growth. The Shanghai Composite Index is trading at four-year lows, while the CSI 300 Index entered a bear market on June 24.

— With assistance by Liza Lin

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