Central Huijin, the domestic arm China Investment Corporation (CIC), the country’s sovereign wealth fund, completed its first bond sale under a controversial new program on Monday, the Financial Times reported. The bond sale has drawn fire for the circular nature of the exercise: While Huijin planned to use revenue from the sale to re-capitalize China’s largest banks (in almost all of which it holds a controlling stake), some 80% of bond purchasers were the banks themselves. Some reports even suggested that CIC had ordered the banks it aimed to re-capitalize to purchase the bonds. The effect is that new assets are written into Huijin and bank balance sheets, but without any actual value entering the system. Huijin’s bond sale is part of a larger effort to rejuvinate the balance sheets of China’s largest banks after a government-directed lending boom in 2009.
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